Friday, March 21, 2014

Creating the Right Trading Displays

In upcoming posts, I'll be showing a few ways of displaying information on charts that I find useful.

Much of short-term trading boils down to pattern recognition.  How information is displayed very much impacts the patterns that are perceived--and those that are missed.

What is important is that the chart clearly reflect the information most utilized by a trader in making decisions.

One piece of information I find crucial is perspective or context:  I want to see how the immediate, short-term action is related to the longer-term market auction.

A simple context is provided by the blue bars along the left axis.  Those display the total volume traded at each market price over the week's trade.  As you can see, we made fresh highs for the week this morning only to stall out.  It was helpful to see where volume had been distributed over the past few days, as that helps define what Market Profile traders call the "value area".  

A market that can't break out of a range is unable to establish value higher or lower.  The rejection of price above value in the morning led to the retreat back into the value range of the longer-term auction.

Markets continually establish value, reset value, and return to value.  Many of the day's best trades come from recognizing when a move away from value is gaining acceptance or finding rejection.

Further Reading:  Markets in Profile