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Hi,
I've been reading Trading on Volume by Donald Cassidy
and have been made aware of a way of charting price and volume in the same chart
window in candle stick fashion. <A
href="">www.pcquote.com has this style of charting
available on its' website.
Price is charted on the vertical axis and volumeis on
the horizontal axis. So, if there was heavy volume during one candle the
rectangular box would be wider than on an average volume day. This is supposed
to make it easier to see the effect of volume on the price action.
Correct me if I get this wrong. The system was
developed by Richard Arms ( also developed ARMS Index, a.k.a.
TRIN).
The width of the average bar was set by using two
thirds of the average volume over the last 30 days and round it off to nearest
100,000 (this might vary). For example if that value was 2 million shares the
volume would be one unit wide, then if the stock traded 4 million shares the
candle would be two units wide. If 3.9 million shares were traded you would
still see a candle only one unit wide. That's hiding the extra volume, so maybe
something should be added to make it two units wide. I don't know what this
fudge-factor could be.
Tall skinny candles would show that the price can move
easier without much influence by volume. You could expect price to reverse
direction at any time.
Wide candles represent significant areas of price
supply ( if at the upper extent of a price move), or of demand or support at the
lower ends of moves. The wider candles draw attention to them for further study
and interpretation.
This is only a brief summary of the charting method as
I understand it now . I'd like to be able to have these charts in AB and beable
to study them and do some backtests.
Is anyone familiar with this method of charting?How
could it be implemented in AB?
Greg
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