January 2005

What is over 500 printed pages in length and been 5 years in the making?    The answer is the Trading Tips newsletter, which is beginning its 6th year.  When readers asks if past newsletter issues are available, I realize they have not yet discovered this informative resource on the Ensign web site.   This table lists some of the best articles published in past Trading Tips issues.  Click on a link to read the full article.

A chart is the primary tool used by technicians to analyze a security.   A chart is a convenient graphical way to represent the time, price and volume properties of a trade event.  This article will show the geometrical relationships for various chart types.

Four basic properties of a trade:

1. The date and time when the trade occurred.  This property is called the timestamp.
2. The price of the trade.  This property is called the trade price.
3. The number of shares or contracts involved in the trade.  This property is called trade volume.
4. The trade event itself.  This property can be thought of as a tick.

The most common way to present the above information about a trade, is to plot trades on a graph where time is the horizontal axis, and price is the vertical axis.

Raw Tick Chart
A raw tick chart shows the individual trade events.  The trade event is plotted as a dot on the price scale (vertical axis) at its timestamp (horizontal axis).    The trade volume is shown below as a vertical blue histogram bar. All subsequent chart types are just variations of this basic graphical presentation of the four trade properties.   All variations involve chunking raw ticks together to form a collection.  The collection is drawn as a bar, instead of as a dot.
Chunking Properties
The tick chunking can be thought of as enclosing a group of ticks in a bounding rectangle.  This rectangle introduces the following bar properties. Open:  The price of the first tick in the chunk. Close:  The price of the last tick in the chunk. High:  The price of the highest tick in the chunk. Low:   The price of the lowest tick in the chunk. Volume:  Sum the trade volumes in the chunk. Timestamp:  From either the first or the last tick in the chunk.
Fixed Time Period
The width of the chunking rectangle is based on a fixed period of time.  The fixed time interval may be any of the following time periods.  Intra-day:   The time period is some multiple of 1 minute. Day:  The time period is 24 hours, measured from an exchange's afternoon close. Week:  The time period is a week. Month:   The time period is a calendar month.
Fixed Price Range
The height of the chunking rectangle is based on a fixed price range.  When the price range is exceeded, a new bar is started.   An in depth discussion of this type of chart can be read in this article:  Momentum Bars. The bar volume is shown in blue. The bar tick count is shown in red.
Fixed Volume
The width of the chunking rectangle is based on the sum of the trade volumes.   When the sum exceeds some fixed volume level, a new bar is started. For example, if the fixed volume level is 500, each bar will build until its volume is 500.   If the sum is currently at 496 and the next tick's trade volume is 10, a volume of 4 will finish off the current bar's volume.  The new bar will start with the remainder 6 volume. The bar tick count is shown in red.
Fixed Tick Count
The last variation adjusts the width of the chunking rectangle until it encloses the same number of trade events.  This is called a constant tick chart. The bar volume is shown in blue. The bar tick count is shown in red.

The four chart types shown above share in common the four basic properties of a trade.   Each chart type forces one of the basic properties to be a fixed unit for each bar in the chart.  The three other basic properties will of necessity have a variable size.   This table summarizes the chart types and the four basic properties of time, price, volume and trade event.

Display Formats:

The chunked group of raw ticks form a bar, which can be displayed using the following variations.  The display variations can be used with any of the chart types.

Standard Bar Chart
The price range is represented with a vertical line extending from the Low to the High.   The Open (first tick) price is shown with a dash on the left side of the bar.  The Close (last tick) price is shown with a dash on the right side of the bar.
Close Ticks Chart
This display is created by showing only the close price for each bar.  The Open, High, and Low prices for a bar are not shown.
Line Chart
A line chart connects the close prices from the bars.  The Open, High, and Low prices for a bar are not shown.
Candlestick Chart
A candlestick is a bar with a rectangle drawn between the Open and the Close prices.  The left and right side characteristics are lost which were used to indicate the Open and the Close.  Therefore, a solid rectangle is used to indicate the Open is at the top of the rectangle and the Close is at the bottom.  A hollow rectangle indicates the Close is at the top and the Open is at the bottom of the rectangle..  A variation for the hollow rectangle is to use a solid rectangle of a different color, such as green.

There are other variations in the presentation of the trade information.  Each variation emphases some particular property or characteristic of the underlying data, often at the expense of ignoring or hiding other characteristics.   So this article is by no means complete and exhaustive.    Some variations that were not covered include:  Renko Charts, Swing Charts, Heikin-Ashi Charts, Average Candle Charts, Point and Figure Charts, Three Line Break Charts, Price Histogram Charts, and Market Profile Charts.

Beginning traders may wonder whether one chart type or display variation is superior to another.   The answer is basically 'No'.   All chart types have their roots in the same trade information.   Every variation will have traders who use that variation successfully and exclusively.  Having said that does not mean that there isn't a popularity bias.  Here is my opinion about the popularity of the different chart types and display variations.

I recently noticed that my small volume charts didn't show the same yesterday's high (YH), low (YL), and close (YC) values as shown on my minute charts.  I keep the maximum bar count small and in the case of the YH and YL, the data to find those values was no longer in the chart data set!   Rather than needlessly increase the max bars, and in the process make a resource intensive chart, I created a tab on the Daily Price Lines drawing tool that writes YH and YL as Global Values (GV).   Additionally, I discovered that because the volume bars close out with volume, and not time, that the close shown on those charts didn't match the regular trading hours close.   So, I added YC as another GV.   The resulting setup is shown below.   I can then draw the Daily Price Lines on my 5 minute chart and select this predefined setup so that the correct real time hours (RTH)  YH, YL, and YC are written:

'As always, thanks for your patience, help, and continued enhancements to Ensign, and the value you create in this incredible software package.'  -F. Del Casino  01-03-2005

'Can't tell you how grateful I am for the really quick reply and the fantastic support.  Many thanks for your time and help.'  -N. Rayne  01-03-2005

'I think you have really hit the best template with the Study Consensus, and also your CCI with Auto-Trendlines will do more  than Woodie's CCI setup.'  -J. Riffel  12-28-2004

'Being able to chart the tick chart speed (see Market Speedometer)  has added a great deal of value for me, very nice!'  - J. Tybrand  12-23-2004

'The December issue must rank as one of the most outstanding "Tips" newsletters, ever!  You've illustrated in a neat, logical, and most importantly, easy to understand way just what linear geometric projections (i.e. lines) are.  By putting them in a global perspective, you demonstrate how this basic concept -- geometric projection -- can be displayed in many ways using tools that many don't even believe are related.  Also, thanks too for the links to the "speed bar".  I saw it shown in a chart but couldn't figure out how to do it.  I love it!  I am now exclusively using volume bars for intra-day trading (aside from a glance at a 10 min. or 2 min. bar chart) and will experiment with it over the holiday.  Best wishes to you and my gratitude for a really "swell" program.'  -A. Gallo  12-23-2004

'Thanks very much for the great software and the new history data.  Its a little scary seeing the big picture though, where things have come from and where they could go.'  -D. Morahan  12-22-2004

'I must admit that after many years of using various other software, I find Ensign to be the most  dynamic of them all.  I can't tell you how pleased I am with your product.  As President of the Society of Market Technicians in Washington DC, (www.markettechnicians.org), I have recently briefed our membership about the technical wonders of Ensign, in addition to your unbeatable price.  I'm absolutely sure you'll be seeing more new subscribers from the DC area in the coming months as subscriptions from your competitors expire.  Thanking you in advance.'  -K. Armstrong  12-21-2004

'Your programming is the best.  Years ago I took a course from the father of Stochastic, George Lane.  He introduced me to Ensign then.  The innovations you've made with Pesavento Patterns tools makes trading enjoyable.  The key is to put all these tools to use, quickly and properly to make money.  And your Fibonacci programming tools work and are easily employed.  I always check the Fib ratios on my Excel calculators (just as a fail safe), and the match is on the money.  When one trades a lower time frame it is necessary to fly the same path as the larger time frames.  I can plot the larger time frames trend line over the tops of the shorter one and get some unbelievable probability.  Love this stuff, great workmanship.'  -W. McGrath  12-21-2004