I’ve been watching volume-based charts for the last two days, and I’m pretty happy with them. I think they clarify the overall stock movement when there are long, low-volume choppy periods. Primarily because these long choppy periods more-or-less disappear.
However, to keep an open mind, I’m still looking at all kinds of charts after-hours. And, I’m surprised to report that, today, Point-and-Figure charts would have been better charts to watch for both of my trades.
I have more-or-less ruled out tick charts, because I don’t intuitively understand why I would care about quick trades with no volume. And, if the quick trades carry volume, they will show up in my volume charts. Anyone using tick charts want to defend their honor? If not, consider their honor thoroughly stomped upon.
Anyway, on to the trades….
AQNT Trade
First, I traded AQNT… I just made a tiny scalp on the break of 33. To me, the only clear level to go long for a bigger trade was up around 33.50ish. Here’s the 15 minute chart… see how messy and unintelligible it is?
Now, here’s the volume-based chart, at 1-million shares per candle. This is what I was using during the day… much better, if you ask me. I’ve shown on it why I was waiting for 33.50 to get in, in a loose triangle-shaped play. It never made it.. maybe tomorrow!
But, check out this point-and-figure chart, which clearly shows an awesome trendline break play:
Wow! It’s crystal clear that entry at the break in the 32.80 range would have given me plenty of chances to take profit at the top of the channel at 33.40ish.
You can also see how differently the volume and PnF charts warp time. Most of the PnF chart is in the initial decline period in the morning, whereas most of the volume chart is in the consolidation afterwards. Also note that the PnF chart has a similar-looking triangle setup forming at the end of the day, so it meets or surpasses today’s volume chart in every way. Wasn’t expecting that!
SCRX Trade
I also got a little on SCRX today. This was one of those short plays that starts out too well. So well, in fact, that there were no upticks to complete my order. I got about 2/3rds filled, and then… nothing. Worse, I couldn’t cancel my order, as it was sitting in the market! Funnily enough, when I used a market order to cover my partial position, that provided the uptick necessary to fill the rest of my order! I should totally use that technique any time I get stuck like that. Just buy 100 shares at the market, which should trigger a fill on my much larger short order. Any reason why this wouldn’t always work?
Anyhow, the trade is fairly clear on the 15-minute chart. Prospectus pointed out it was leaning on 24.00 around 2PM EST:
This is not the type of play where I’ll commit to a full trade. I don’t like these long drifting descents to the OR low. But, for a scalp they are just fine, if the volume is right. So, I took the trade, and despite the bad fill, made some money.
Here’s the 500k/candle volume chart, which further confirms the lack of a real setup. But, it does show that it had never crossed 24.00 with any significant volume yet…
But, once again, these are completely crushed by the prescience of the mighty PnF chart. It shows a trendline break up at 24.20ish, which clearly broke support at 24.00, and which you could easily hold till the end of the day. You’d trail a stop along the downsloping trendline which I didn’t draw in, but which is pretty obvious on the right-hand side of the chart.
I have always been intrigued by PnF charts, and I use them sometimes when analyzing daily charts. But, I hadn’t seriously considered trying to daytrade from them. I will be looking at them after hours to see if they remain as insightful as they were today.
And on WallStreak
I spent a fair amount of time discussing various techniques I use on wallstreak today. There’s no easy way to link to it all, because of the way it works. But, it’s in the Stocks tab if you want to see it. It’s all about watching the trades go by, and ways I try to interpret what it means for future price action. I’m biased, of course, but I think there’s some good information in there.
May 8th, 2007 at 2:56 pm
I have always thought that P&F charts were probably the most useful, because they are constructed in such a simplist way, which usually means its good, as this was the way pre-computer. A lost art, I’m sure, but your diagrams make sense.
- TraderD
May 8th, 2007 at 2:59 pm
I would like to learn more about them… the only thing I know how to do with them is trendline breaks and S/R areas. There may be a whole bunch of more sophisticated analysis that someone can do, but I’m just not aware of it.
May 8th, 2007 at 4:11 pm
I have a book called “Point and Figure Charting, the complete guide”, by Carrol D. Aby Jr., around 300 pages. That may be resource.
- TraderD
May 8th, 2007 at 6:10 pm
richard: i’ve never even heard of them being used for daytrading, but it looks promising…keep us posted
May 8th, 2007 at 7:27 pm
I’ve used tick charts, and I think that they are useful to collapse time out of a chart. If your approach only relies on price and doesn’t care about volume, I think that tick charts make more sense. Plus if you look on a very small scale (1-2 ticks) then you can see the transactions going through, and get a feel for the speed. You could also get that from watching Time and Sales, so maybe it’s not that useful. I think volume candles show you more, as you said above, if you can intelligently choose the volume per candle.
There are a few complications with trading from PnF charts in real time. They show you a great picture of the trading action after the fact, but in real time they still form according to the passage of time. Plus the reversal and box size settings make it harder to find a low risk entry. If you were going to trade the big breakdown from 24.35, the price would retrace to 24.20 before the column reversed itself and started printing O’s, possibly knocking out your low risk entry point. Plus they don’t show you volume. And there’s a bit of “curve fitting” that goes into choosing the box size and the reversal number.
I’d love to see how you address these things, as I think PnF charts are very valuable for showing what happened, and if they could also better communicate what’s happening and give tradable signals, then that would be awesome.
May 8th, 2007 at 7:45 pm
I’m not sure I understand what you mean about the low-risk entry? Wouldn’t you just set a stop so that it is beyond the entry row (in the whitespace of the chart)? If you are stopped out, you are stopped out.. same as any other trade? If the boxes are too wide for your risk appetite, why not just use smaller boxes?
As for tick charts… I guess, I think of trade rate as a very local effect. I’m just not sure what good it’s doing me to see artifacts of hours-old trade rates shaping my charts.
May 9th, 2007 at 12:56 am
I played around with P&F charts today.
If you change box-size and reversal-size, the beautiful trendline-break entries are gone.
I don´t see a way to avoid this, would be glad to see any idea how to solve it.
May 9th, 2007 at 6:20 am
You mean, kinda like how if you switch from 5-minute to 30-minute charts a lot of setups disappear? Or if you switch from time candles to tick candles? Gimme a break… changing any chart parameters either shows or hides possible entries…
May 9th, 2007 at 9:12 am
I don´t see it this way in terms of PF charts, but maybe you are already one step ahead and I can´t follow.
Thanks for your blog!
May 9th, 2007 at 9:23 am
How do you see it, then?
In what way is it different to adjust a PnF chart versus any other chart? Even on the same chart, playing with the period of your moving averages, or RSI, or whatever, also changes whether opportunities are clear or not.
May 10th, 2007 at 3:05 am
I see a difference if I change from a 5 minute to a 10 minute candle-chart or if I change a MA from 5 periods to 10 periods.
The signals on the 10min charts are almost the same as on the 5min chart.
If someone uses MA´s as a signal for entries/exits, the signals on a 5 periods MA are different than on a 10 periods MA and it depends on the chosen period if you get a profit or a loss.
The same with PF charts: Choosing a different reversal size changes the signals and lead to a profit or a loss.
Please don´t understand me wrong: I really appreciate your work, I even watch PF charts during the day now, but I still have problems to work with this kind of charts.
Maybe I´m too closed-minded, but I see more objectivity in time-based charts.
May 10th, 2007 at 6:50 am
A chart (of any kind) is not there to give you signals. It’s there to help you understand where the stock has been. The fact that 10 minute charts looks so similar to 5-minute charts is a _bad_ thing, as far as I’m concerned, because I want different parameters to show me different insights into the stock.
I don’t even know if _I_ am going to keep watching PnF charts, so please don’t watch them just because I’m talking about them… especially if you don’t understand them.
May 11th, 2007 at 2:31 am
ok