The notes below were taken from StockCharts. The chart does not use all the suggested parameters. I just want to see if in general the %B Indicator and the MACD improvements will offer earlier predictive value. I think they will. RtS
Hopefully, these examples will inspire all our ChartWatchers to dive into SharpCharts2 with both feet and take the time to learn what a truly powerful charting system it is.
Exploring Bollinger's %B Indicator
In his latest book, John Bollinger presented several new indicators that felt would help chartists interpret Bollinger Bands better. One of those was the "%b" indicator. %b "tells us where we are in relation to the Bollinger Bands and is the key to the development of trading systems via the linking of price and indicator action." (p.60). %b will equal 1.0 when prices are at the upper Bollinger Band. It will equal 0.50 when prices are in the middle of the bands. And it will equal zero when prices are at the lower Bollinger Band. As John Bollinger suggests, %b can be easily used to create simple trading systems - for example "Buy when %b is below 0.1 and sell when %b is above 0.9." The following SharpCharts2 chart can be used to visually evaluate such a system:
Notice how the oscillation of the green %b line corresponds to the movement on the price bars within the shaded Bollinger Bands area? The chart also shows how each time prices move above the shaded area, the green line moves above 1.0 on the left vertical scale. Similarly, when prices moved below the lower Bollinger Band, the green line sank below zero.
Detecting MACD Changes Sooner
Most ChartWatchers are very familiar with the MACD indicator and its partner the MACD signal line. The MACD signal line is commonly used to create simple trading system (buy when it crosses above the MACD line, sell when it crosses below). SharpCharts2 adds another tool to your indicator arsenal that can help you evaluate changes in momentum oscillators like the MACD - the Slope-of-an-Indicator indicator.
Slope is a simple concept: take two points on a graph and divide the change in height (the "rise") by the change in horizontal distance (the "run"). (On StockCharts, we then multiply that result by 10 for clarity.) The slope of a horizontal line is zero. The slope of a vertical line is infinite. The slope of a rising 45-degree line is +10 and the slope of a falling 45-degree line is -10. Typically, for financial data, slope varies between +10 and -10 with occasional spikes outside of that range - that is especially true for the slope of "smoothed" data - MAs, EMAs, and (for our purposes) the MACD Line.
Slope can be used to detect trend changes early on - especially for smoothed datasets. Check out the following SharpCharts2 chart:
Show me the Volume!
CandleVolume charts are perfect for seeing how and when money moves into and out of a stock - especially when combined with our "Volume by Price" overlay. In a CandleVolume chart, the width of each candle is proportional to the volume for that particular day. Fat candles mean high volume days, skinny candles mean low volume days. Check out the following chart:
See how the tall volume bars at the bottom of the chart really stand out? That's a key feature of CandleVolume charts.
The horizontal bars sticking out from the left side of the chart are the "Volume by Price" bars. They are the total volume of all days where the stock's price closed within the vertical height of the bar. For instance, the bottom of the longest bar is at 5.60 and its top is at 5.85. You can see that there were lots of price candles that closed within that price range on this chart (many from late December through 17-Jan). All of the volume for those bars were totaled together to determine the horizontal length of the bar. (Note there is no scale displayed for those bars - just compare them to the other bars on the page.)
Creating the Chart: Start by selecting "CandleVolume" from the "Type" dropdown in the "Chart Settings" area. Make sure the "Range" is "Fill the Chart" and the "Size" is set to 620. Next set the "Volume" dropdown to "Separate". Make sure the "Color Prices" and "Color Volume" checkboxes are checked. Finally, add a "Vol by Price" overlay.
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