Draw Tools
Difficulty in reselecting Draw Tools
Draw Tools and studies are reselected by positioning the cursor on the
object, and clicking the left mouse button. If the tool or study is the
same color as the background or grid, the object cannot be selected. This
is because the colors used by the background and grid are ignored. The
solution is to change the draw tool color so it is different than the background
and grid colors. Also, change your Windows settings for your display to
use 16-bit or 24-bit True Color.
Selecting a color for a Draw Line
After drawing a line from point A to point B, while it is still selected,
click on the Change Color button on the main button panel. This displays
the Color Dialog so a new color can be selected. Or, instead of using the
Change Color button, click the right mouse button and change the color on the
parameter form. Click on the colored square and a Color Dialog box will be
displayed.
Fibonacci extension levels
Draw Fibonacci Levels on a chart from point A to point B, and click the right
mouse button for the parameter form. I f you check 1.618, for example, a line
will be drawn as a retracement 162% from point B. If the Both Sides box is
checked, then another line will be drawn as an extension 162% from point A.
These two lines are symmetrical about the midpoint between A and B.
Drawing a horizontal line
The Draw Line tool has two parameter effects that are useful for drawing a
line horizontally. Draw a line as usual from point A to point B.
While the line is selected, click the right mouse button to display the
parameter form. Check the effect for Horizontal. This will force point B
to be horizontal from point A.
Or, since it is a common thing that is done, you can hold down the SHIFT key
when you finish the line construction and the program will make you line
horizontal from the first construction point. So, it is easily
done. If you want to focus on a specific price level more accurately
than just a visual placement, you can visit the draw line's property form and
edit the price box to be a specific value.
Oft times the specific price you want is a high or low of the bar where the
line is placed, and there are optional check boxes to use the bar's nearest
high/low as the specific price. Check the effect for Use High/Low if you
want point A to snap the bar's high or low price. If point A is above the
bar, the high will be used. If point A is below the bar, the low will be
used. The bar that is used is the bar aligned with point A. If you
frequently draw horizontal lines, then check the Use as Default box to establish
these effects as the default.
Speed resistance lines
Speed Resistance Lines (SRL), sometimes called 1/3-2/3 lines, are a series of
trend lines that divide a price move into three equal sections. They
are similar in construction and interpretation to Fibonacci Fan Lines.
Speed Resistance Lines display three trend lines. The slope of
each line defines a different rate at which pricing expectations are changing.
Prices should find support above the 2/3 line. When prices do
fall below the 2/3 line, they should quickly drop to the 1/3 line, where they
should again find support.
On the properties form for the draw line, the Slope box is the incremental
price change per bar.
So if you enter 45, that is NOT 45 degrees. Instead that is asking the
slope of the line to move upward at a rate of 45 points per bar, which might be
a useable rate on a daily S&P chart.
Slope defined
Slope is defined, in simple terms, as the Rise over the Run (or Rise/Run).
Two points on a line are necessary to calculate the Slope. Charting software,
like Ensign Windows, use the slope formula to draw lines on charts. The slope is
equal to the amount of vertical change (Price) divided by the horizontal change
(Bars).
Simplified Example:
Rise: Given a starting price of 120 and an ending price of 150, the Rise
would be equal to 30 price units.
Run: If the starting point is at bar 2000 and the ending price is at bar
2060, then the Run is equal to 60 bar units. Slope: The Rise divided by the Run
is equal to 30 / 60 = 0.5 price units per bar units. The line would slope
to the upside at a clip of .5 price units per bar.
The confusion that sometimes arises when using computer generated charts, is
caused by the misconception that the chart is like a piece of grid paper (where
the vertical units and horizontal units are exactly the same). Grid paper lends
itself to charting units where one step up is the same distance as one step
sideways. Therefore, a line (on grid paper) with a slope of 1 will always
have a 45 degree angle (since one step up and one step sideways will result in a
slope of 1). However, a computerized chart is not a grid paper. The chart
can be stretched vertically and horizontally without changing the reference
points of price and bars. The bars can be spread out wide, or compressed closely
together. If a Line were to maintain a perfect 45 degree angle when a
chart is resized or compressed, the Slope of the line would not equal 1. The
slope would change drastically when the chart was stretched.
Ensign Windows DOES have a 45 degree tool. The 'Circle' tool in the
Draw Tools includes an up and down 45 degree line. You can specify in the
'Circle' parameters screen to hide the Circle perimeter so that only the 45
degree lines are drawn from the center point. Just remember that your
chart is going to re-adjust its scale and change over a period of time.
The chart is not a grid paper. The chart is a dynamic rescaling price and
time measurement. Therefore, the old school idea that a 45 degree line is
a magical tool, just doesn't work with computer generated charts.
Lastly, in the example formula above, the slope was equal to 0.5 on the
chart. The ANGLE of the line has no relation to the SLOPE. You can
stretch and compress the chart and the SLOPE of the line will remain at 0.5 (the
price to bar ratio does not change, even though you resized the chart).
However the visual ANGLE of the line, as you stretch the chart, will change a
lot. I hope this helps clarify why a slope of 1 does not always equate to
a 45 degree line.
Additional information on this subject is in March
2001 issue of the Trading Tips newsletter.
| 
