This post was contributed by a guest author, and does not necessarily reflect the views of Richard or MovetheMarkets.com
Richard’s been posting a lot of PnF charts lately, and I saw a setup in QID today, though I didn’t trade it:
One thing PnF charts are really good at is filtering out noise at support and resistance zones. There was a pivot point resistance zone near $47.80-$47.90 that was very wide on a candle chart, but clearly shown on the PnF. The trade would have been good for about 3R. I’m also experimenting with putting volume by price along with pressure bars on the PnF. The volume by price shows how much volume occurred at a specific price level, identifying potential support / resistance. The pressure shows the net shares at bid or ask during a PnF column. I don’t have any conclusions yet, but there it is if anyone is interested.
This post was contributed by a guest author, and does not necessarily reflect the views of Richard or MovetheMarkets.com
May 14th, 2007 at 2:52 pm
It looks good, but when I count I get more like 2R. I am assuming a buy at 47.90 and a stop at 47.70.
I tried vol by price, and I like the idea of it, but my eyes don’t like to see it on the chart. I think I would rather just have a strip on the right that was a grey-scale heat map of the volume, rather than bars going “underneath” my PnF columns.
May 14th, 2007 at 2:57 pm
Also, I think I mentioned this on wallstreak, maybe, but can’t remember: I think bid/ask pressure stuff on an ETF can be pretty misleading, because the arbitrage folks will push the price wherever it belongs, no matter how much you’ve got on the bid or ask. I find that any skill I have reading prints is pretty much useless on ETFs, so I don’t even try.
May 15th, 2007 at 5:45 am
Yep, it depends on how you set the stops. I agree about the volume by price thing. The only thing I like is that the volume, if big in an important area, makes its own support / resistance line on the chart. The rest of it is just noisy.
Yes, you mentioned that on Wallstreak. I’m more looking at the pressure for stocks.
May 15th, 2007 at 11:34 am
Ah, but that’s just it! The PnF chart should be able to show major support and resistance, all by itself. The amount of volume on the other side of it tells you how many people are hurting, and might push the move harder.