Daytrading: building a graph

Miscellaneous TheRedPyro August 7, 2016 0 0
For day trading is to find an adequate representation of the financial products in which one is performed, is essential. One can stocks, options, futures, turbos and occurred more. These are displayed in many different ways, the candlestick method is the most popular. Why is that so, however?


Previously, the use of tickers, especially in the 20s of the 20th century widespread. That was necessary because there were no computers. Prizes were written on plates, and the market was not directly in real-time. It is made of their own hand and the charts with technical analysis was applied to it. Completed transactions were shown as Time and Sales. This is a way to add volume again, but also that the price of the traded shares was recorded.

Line graphs

Of crude prices was one line graphs. The graphs which are one line indicates the value of a share or other financial product was. This line is an average of the bid and ask prices and is widely used in newspapers to display stock prices again. Most traders use this chart, however, because the high and low of a chart herewith are not displayed. Stop-losses can be triggered namely by the high and lows.

Bar charts

Professional traders began to use bar charts. Here is the graph is divided into several bars, depending on the time. A bar is a figure with open, close, high and low. Suppose a bar is drawn on a five-minute bar chart. When one than from 0:04:59 to 0:05:00 passes draws a new bar. The price at that time the price of a share is the open, when one goes to 0:10:00 the price is quoted, which is the close of a five-minute bar. The extremes of all price movements between the high and the low. Realize, however, that they open, close, high and low still averages of bid and ask prices.

Candlestick charts

After the Second World War, a new phenomenon in Japan float upwards, the candlestick or candle. This graph method was practiced there for hundreds of years. The candlestick bar is the same as an ordinary bar, but with a body. This body may have different colors depending on which direction the bar is ordained. If the bar is bearish, this example red, if it is bearish, this bar is for example, white or green. The candlestick thus gives a little bit of extra information on top of a normal bar chart. This caused candlestick charting became quite popular. Much information was displayed compact. One can also choose other time-formats of the candlestick-bars, called the time frames, so that information can be displayed on graphs still more convenient. The widely used time frames starting from the tick-level, this level is the level at which a trade is executed. From this one uses contract custom time frames, such as 1 min, 2, 3, 4, 5, 10, 15, 30, 60, 120, 240, daily, weekly, up to monthly. But few use larger time frames as quarterly.

Candlestick analysis

The popularization of candlesticks candlestick analysis came forward. This idea was especially encouraged by the founder Steve Nison. The vercomputerisering of the day trading also helped, one can conjure graphs literally within a few seconds on the screen. To candlestick analysis it is assumed that certain types of candlesticks create statistical trading benefits, or an edge. When, for example, detects a doji, the market is uncertain and can upwards or downwards. When a key reversal is the probability that the market is turning more than 50%. On the basis of this philosophy candlestick analysis was a form of technical analysis: from the history of the candles can be acted the future. But the question is, how much candlestick analysis is useful for day trading with. One can say that when one sees a key reversal, one can expect the market turns. However, the reverse can also be said: when the market turns, the more likely you will see a key reversal. In a trend change in the market is seen as a result more key reversals, but that does not necessarily mean that there is a causal connection that key trend reversals lead to changes in a market. One should think carefully whether there is a statistically and / or logical connection, which supports candlestick analysis.

Fractal analysis

The existence of multiple time frames led to the popularization of fractal analysis. From the level of the smallest time frame, up to the largest, price goes always from one direction. However, the interpretation of the direction of the ring market depends on a time frame. A "small" motion downward can be great at the 1 minute time frame, but of minor importance on a monthly time frame. One can argue that, if a trend is present on a large number of time frames, this trend is more important and / or profitable, a trend which is only present in a small number of time frames. By the term fractal analysis is then also mean, that the market is, in essence, small begins, starting from the smallest fractal, and is becoming increasingly larger, up to the largest fractal. The more fractals are in line, the more likely that the trend is a "real" trend which money can be earned. As a result of this philosophy, many day traders use multiple time frames. They not only look at daily charts, but also based on charts at 60 min, 30 min or 15 min. Scalpers sometimes look even to the level of a tick chart.

Elements that make up a chart exists

In the base, there is a graph of a standard financial product like a stock, always from three inputs: price, volume and time.
Indicators such as moving averages, are subject to price or volume as input, causing some traders indicators regarded as nonsense. They only look directly at price and volume, and decide on that basis whether the market goes up or down. These are called tape readers.
It also has traders who take time into account in their decisions. These traders are mostly fan of esoteric technical analysis as Gann and Elliot Wave. Because this much like soothsaying, even more than normal technical analysis, the technical analysis is not very popular.

Variations on candlestick

Candlestick bars are based on time, to break in. Since not everyone believes that every moment of the day is just as important, it has been devised other forms of candlestick charts. Examples include tick-charts, range charts, Heiken-Ashi, and renko.
  • Tick ​​charts draw the candlesticks after a certain number of trades, rather than a set number of seconds. In this way one trades made by professional traders better distinguished from private investors. When one thinks that professional investors are called "smart money", and they want to follow these investors can tick charts help.
  • Range charts draw the candlesticks after a minimal amount of movement of the price. The idea is that when price is consolidating there to be little gain profits. By making small movements can not be displayed in a graph, one can easily ignore the consolidation periods. Result should be that trends are more visible on range charts.
  • Heiken-Ashi and Renko are two types of graphs like candlesticks come from Japan. The first is used to let candlestick graphs with "gaps" smoother look. Gaps are pieces of a graph where there is no candle seen, while aesthetically it is more convenient. The second uses no time and space in its graph. Both variants should in principle ensure that trends are more visible on a chart of a financial product.