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I Want A Better Chart
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I Want A Better Chart

  #1 (permalink)
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I Want A Better Chart

Warning: Twilight Zone Topic

I'm going to discuss the randomness of charts, a topic obviously not interesting to most traders. So be warned, this is "out of the box" thinking that delves into pure logic, data formations and the like.

Issue
First, let me say I have a trading system I am happy with and gets me by. But like a dyslexic child forced to live in a world that doesn't make much sense I've been puzzled from day one by the pure randomness of what we do.

In the beginning we're told to get a 1 min, 5 min and 1 hour chart to gain multiple perspectives on a single instrument. Well, OK, I got the point and followed instructions since that must be what most people do. But over time we all tweak our charts, add indicators, read books until we arrive where we are today with some system or another we think gives us an edge. Some use tick charts, volume charts, time charts or a combination that seems to fit our trading style.

But I still can't get past the fact that we base our trading decisions on charts that, at their most basic level, are chosen randomly. Let's say Trader A likes to use a 1 min and 5 min chart. Hey, that's great, but why not a 39 second and 311 second set of charts? Or maybe a 59 second and 270 second chart? Without some very specific reasoning behind the decision, choosing a 1 min and 5 min chart is a random act.

Trader B likes to use a 50 tick along with a 3 minute chart. I think that's great and that trader has certainly experimented to arrive at those numbers. But all markets change so why doesn't that trader adjust the settings to reflect those changes?

Now couple that randomness with the fact that many people use different platforms. Trade Station gives you a different data set than Ninja. So an indicator used on TS will appear completely different on Ninja even if it is the most basic type such as a moving average. I'll go as far to say that two traders sitting next to each using the same platform and identical indicators will get slightly different charts. This is because they have different internet connections, computer processors and other data feed issues.

So how in the world are we supposed to trade our hard earned money based on random charts and bad data?

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  #2 (permalink)
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Not sure I agree with it being random.

In the states, we drive on the right-hand side of the road. It's mainly because everyone else does (forgetting it's a law). Is it more right or wrong vs. for instance the UK, where they drive on the left side of the road?

I've settled on a 5m chart because that is what I feel the majority of other successful traders use. It's not a random act for me. I spent over a year trading range charts and avoiding minute charts nearly at all costs. But I finally kept questioning range charts enough that I decided to try minute charts again, and when I did, I realized that the mistake before was not properly interpreting them.

With charts other than 5m chart and etc, I cannot see why the market moves and can't understand it. A range chart or volume chart, etc, or a odd sized minute chart, they just don't make sense to me.

So going back a bit -- for me, it is not random.

Mike

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  #3 (permalink)
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Don't forget that you don't trade the chart; you trade the market. And, there's only one of those. So the "true" market gets distorted a little by your data provider, your internet connection, and your platform. Then it's presented to you through the lens of your chosen chart type and indicator set. But, there's still only one market, and that's where your orders are sent.

Most successful daytraders I know are watching almost every tick go by on their charts, whether they watch 15min or 3second charts, so... in some very real sense they are watching the exact same story unfold at the exact same rate. It's just that one is choosing to track more reference points than the other as those events recede into the past.

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  #4 (permalink)
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I agree, Mike, that not every chart is random, just most of them. A 5 min chart is most likely used by all trader types including the big boys. And that is a solid, logical reason to use that chart type. But how many people trade off a 5 min chart?


Getting By

L
ike the dyslexic child, we are forced to just get by in a world of uncertainties. It's bad enough to have to deal with slippage, commissions and a market designed to trick the retail trader. But to pile on top of that random charts and bad data is simply unacceptable to my senses. In other words, it doesn't pass the smell test.

Unless you have an extra $100,000 laying around to invest in a top of the line system what can possibly be done?

Well, I don't have the answers but I do have a hunch. And that hunch tells me we need a new type of chart. It would need to be a chart that adds a new "dimension" to the currently available charts. Say, for example, that you could add a time factor to a tick chart. That would require that not only tick data be displayed but then display that same data over a period of time. And I'm working on exactly that. Once I can provide some working examples my hope is some super coder can take a crack at making them a reality.

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  #5 (permalink)
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Well put Richard.

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  #6 (permalink)
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In my opinion, Range charts attract novice traders due to their "smoothness". Traders also choose smaller and smaller time frames (whether they be tick, volume, Renko, whatever) because of fear, usually from a prior loss that was not in fact the fault of their chart, or candle size, but was in fact because of their lack of discipline, trading plan, or experience.

I've seen so many comments about how smooth Range charts are, and I instantly think "so?", who cares. To me, Range charts provide the illusion of smoothness and the reality of impossibility. What I mean by that is often times a chart will have several range bars fly by in an instant (on most any market except ES), with no hope of the trader being able to actual catch that move. Traders will look at this in hindsight (on a historical chart) and not realize it was impossible to actually trade such a move.

Whereas on a 5m chart, it's still a 5m candle whether the chart is screaming fast or slow like a turtle. I have time to make a decision on that candle because the candle itself is what is important, the 5m being important. I find no importance in a Range chart, and I don't think any "big traders" do either.

Too many traders say "ouch, the 5m candles are huge!". Ok, first clue -- if a single 5m candle scares you in any market, then your account size is too small to be trading that market. You need to increase your account size, or you need to find another market. Second, have you ever stopped to realize why the candle was so huge? That's the key, that is where your focus should be, and to be part of the "huge" movement before/as it happens, not after.

It is not easy, and like I said I struggled for a long time before finally I had enough experience to be able to see it myself.

Mike

Due to time constraints, please do not PM me if your question can be resolved or answered on the forum.

Need help?
1) Stop changing things. No new indicators, charts, or methods. Be consistent with what is in front of you first.
2) Start a journal and post to it daily with the trades you made to show your strengths and weaknesses.
3) Set goals for yourself to reach daily. Make them about how you trade, not how much money you make.
4) Accept responsibility for your actions. Stop looking elsewhere to explain away poor performance.
5) Where to start as a trader? Watch this webinar and read this thread for hundreds of questions and answers.
6)
Help using the forum? Watch this video to learn general tips on using the site.

If you want
to support our community, become an Elite Member.

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  #7 (permalink)
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Perhaps look at the issue as a data sampling problem? After all that essentially what a chart does provides a sampling of data with respect to constant time, range, no of ticks, volume or whatever. An hourly chart is a courser sampling than a 5 minute one.

One paradigm shift that I made that sounds trivial but I think is pretty important is this. Many people when looking at chart types, tools and such ask themselves what does this show me? It is much more useful to start from a "what do I want to see" perspective. You look for a tool to do a job rather than go through the box trying each out to see what it does. Specific objectives. ((Though we all like messing with new tools right ))

One of the early things trader do (or should at least) is sit down and decide what they want to trade and what sort of size swings in that market they want to capture. Certain charts or tool settings should lend themselves to this task (those that are not scalable or applicable to different markets I would tend to discard personally.) This should let traders (with a bit of trial and error) home in on charts tools and settings to best see these swings and ultimately time entries and exits. This paragraph could do with a couple of pages to be honest. I hope this extremely brief couple of sentences gives an idea of what I mean by "what do I want to see".

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  #8 (permalink)
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By and large, I believe the markets are random with pockets of non randomness that successful traders take advantage of through pattern recognition. Those patterns can be with bars, volume and indicators or a combination of all three and they need to appear with enough frequency and probability of working for a mathematical edge after costs and expenses. The business of those successful traders is to work that edge to death.

All charts regardless of their type, color or size contain the same information. It is the trader who must decipher that information and act upon what he sees, not what he thinks.

Since Al Brooks has come on the public scene with a marketing splash, many are trying to emulate his methods by going to a 5 minute chart and taking his setups. But what's good for him may not be good for others. Don't lose sight of the fact that gurus come and go in this business.

One must, through painful trial and error, do the work to find not only a method that has a statistical edge, but also fits well with his risk tolerance and psychological challenges. There are no super shortcuts to this learning curve, so be aware of anyone who holds out the carrot of success for a large fee. Odds are the vendor is a washed out losing trader who realizes that teaching others is a better and riskless source of income.

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  #9 (permalink)
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hondo69 View Post

Well, I don't have the answers but I do have a hunch. And that hunch tells me we need a new type of chart. It would need to be a chart that adds a new "dimension" to the currently available charts. Say, for example, that you could add a time factor to a tick chart. That would require that not only tick data be displayed but then display that same data over a period of time....
[/FONT]

Hondo - maybe I am confused on what you are searching for but if you take a tick chart and put Richard's virtual bars over that using a 5 minute setting on the virtual bars you would have what you have described with a "5 minute filter" This can be changed to whatever you would like.

Also as a side thing you will see the illusion that 5 minute bars can be. What time do you start them...? What if your computer clock is different.. They are just a way to divide up the price action. If this particular divide works for you that is fine. For those that follow 5 minute price bars patterns take a look at these screens below. Exact same tick data but a different arrangement of 5 minute bars based on when the clock was started. Looking at just the 5 minute bars ask yourself would you have traded this screen differently based on the progression of bars.... a long bar followed by a short bar... and inside bar...or whatever pattern you see....The progression looks different based on when the bars start.... the ticks are exactly the same....just something to think about. This is just a few ways this "could" have looked by pushing the clock forward 1 minute at a time. What if just 20 seconds different then the "control" ...30, 45, etc.

Attached Thumbnails
I Want A Better Chart-5min0.jpg   I Want A Better Chart-5min1.jpg   I Want A Better Chart-5min2.jpg   I Want A Better Chart-5min3.jpg   I Want A Better Chart-5min4.jpg  
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  #10 (permalink)
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Big Mike View Post
What I mean by that is often times a chart will have several range bars fly by in an instant (on most any market except ES), with no hope of the trader being able to actual catch that move. Traders will look at this in hindsight (on a historical chart) and not realize it was impossible to actually trade such a move.

That is precisely the reason I switched to the 5 minute myself.

But...Websouth are you saying that the 5 minute bars aren't constant for everyone that uses say... Zenfire? If all I need to do is change my computer clock to now see a doji where there was previously a long bar then I see that as an illusion as well. I guess I am confused about this.

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