Chapter 10. Workspace Mania

This chapter covers some of the more amazing "power-user" features of ErlangerQuote: the Workspace Plugins. These are mainly charts or small programs that have extraordinary features, superior performance, or some notable distinction. Because Workspace Plugins do not appear on a chart, they are not chart plugins. And because they don't appear in a quote sheet they are not quote sheet plugins.

As workspace plugins they have their own set of rules and preferences, which you can learn about in this chapter. The menu below is accessible from the File->New menu selection. The middle area shows the Tenlights workspace plugins at the time of this writing . Note that all the names of the Plugins have the company name Tenlights in front of them. Tenlights is an Erlanger brand name. If a third party plugin is installed properly the name of the company that makes it will appear in this list. That allows you to separate them in a logical way.

Figure 1 Workspace Menu

The collection of different types of Workspace plugins is far ranging so lets help understand their general purpose first, then we can take a look in more detail.

3 Point Break This is a special kind of chart that is an outgrowth of the candlestick—sort of beyond the valley of the candlesticks. The idea is that once a certain kind of three step move in price occurs, the chart waits for a certain level to be exceeded, and when that happens, it considers a 3 line breakout has occurred, and it draws a special kind of bar and gives an alert to go long or short. Time is irrelevant in this type of chart as you will see. We'll give you the details later but intraday traders swear by these charts and entire web sites are build around 3 Point break charts.

Bid Ask The Bid Ask workspace is simply a chart that shows the bid and the ask price displayed instead of the normal price (which is usually a bar of the open, close, low and high of the interval.) Traders find this a great way to understand the subtle pressures by buyers and sellers throughout a day or a week.

Market Profile A unique way to view the market for a stock in a manner that the CBOT has quantified, one that gives a feel for the market that you can't get in a trading pit. The idea is they look at the market as self regulating "Time/Price Opportunities" (TPO) where players trade just at specific times and specific prices. Price  "probes" that are too high or too low are put out to test the market and create opportunities. This indicator lets you see the behavior of these TPOs.

Point-n-Figure Point and Figure charts are unlike traditional charts in that they disregard the passage of time and display price changes on both axes. They use little Xs and Os and are easy to dismiss as trivial, but in fact PNF charts are very powerful ways to notice price breakouts and reversals.

Time/Sales Time and Sales is a scrolling sheet that shows every single trade, bid and ask that occurs in a stock through out the day. Day traders can't live without this instrument. Its like looking at a tick chart except you see the price, bid and ask with the time to the exact hundredth of a second!

Equivolume This wonderful plugin shows a sort of candlestick that has the width of the bars proportion to the volume traded for that interval.

Time/Sales Tone If you like listening to the music of the quote stream, this is your shining start of a plugin. It converts the time and sales events to trading tones that are musical in nature.

3 Point Break

3 Point Line Break charts were first brought to the United States by Steven Nison in his book: Beyond Candlesticks, New Japanese Charting Techniques Revealed, 1994, John Wiley and Sons, 280 pgs. In ErlangerQuote the 3 Point Break Plugin is a "workspace" plugin and is accessed from the File->New menu. Sounding a little like a square dance, it has various names including: three-line break, three-step new price, new price three-line break, surpassing three-lines, three-line turnaround method, new price three-step bars, and the three-step-swing-dance (pun intended).  The 3 Point Break chart is accessed with File->New->Tenlights Workspace 3 Point Break.

Basically a 3 Point Break chart shows a series of vertical boxes (called strangely "lines") that are based on specific changes in prices. The thing that is unique about the 3 Point Break is that it ignores the passage of time and has no horizontal axis grid (this is also true for the Kagi, Point & Figure, and Renko charts). This does not mean time is not involved in the 3PB chart and its display does in fact change with the Interval, as you will see, but it just doesn't display time at the bottom of the chart.

Essentially a 3 Point Break chart draws a white bar (white line) as long as the new close price is above the previous bars high and a black bar (black line) as long as the close price is below the previous bar's low. If neither condition is met nothing is drawn. And if nothing is drawn it means things are changing in time with the stock but they are not being displayed on the screen. As long as the rule is not met the 3PB does not draw. Once you understand this distinction, that time is skipped and so the time axis is not exact, just relative, the whole idea of 3BP will come together for you. The horizontal axis represents how things have changed in time, but not absolute time.

3PB Weekly

Look for three consecutive lines (bars) that are going up or going down; and then "reverse". You buy when a white line emerges in the opposite direction and exceeds the three previous black lines (a "white turnaround line") or you sell when a black line appears in the opposite direction and exceeds the three previous white lines (a "black turnaround line"). Look at the 3 Point Break below of American Online. This is a weekly chart but the only way to know that is to look in its title bar.

Figure 2A 3 Point Break Workspace plugin chart Weekly

If you compare the weekly candlestick chart below with the weekly 3 Point Break chart above you can see how the 3PB gave a "3 Point Break Reversal" signal around early July. I have stretched the spacing of the 3PB chart to make the peaks coincide better with the peaks in the candlestick. In Feb AOL hit its peak and the so did the trend of the 3PB chart. The first reversal signal occurred in April, and you can see the first downward black line in the 3PB. chart.

Figure 2B Candlestick chart Weekly

When using the 3 Point Break chart a there is no arbitrary fixed reversal amount; only the price action decides the reversal. The reversal must exceed the range of the previous 3 bars or it will not be considered a break out and will not be drawn as one.

A problem with the 3 Point Break chart is that signals are generated AFTER the trend is underway, meaning you may be aware of a trend just as it ends or fizzles out. At the same time the 3 Point break can clearly tell you when the trend has ended, so the late signals may not be such a disadvantage.

Nison's book discusses using 3 Point Breaks with candlestick charts, and letting the 3PB signal the overall trend, and then using candlestick patterns to time when to buy and sell your stocks.

3PB Daily

The charts below are daily intervals for AOL and they show a number of trend and the reversals for a 3 Point Break Chart. The ErlangerQuote 3PB plugin in has the unique ability to paint "today's" bars in any color, here the up line is in green and down line is red. Therefore if you look closely you can see that today the drop in AOL caused the 3PB to draw a red down bar because the drop exceeded the low of the previous 3 white up bars. This is a strong reversal.

Figure 2C 3 Point Break Workspace plugin chart Daily

 

Figure 2D Candlestick chart Daily

3PB 5 Minutes

In the chart below of AOL we have switched both 3PB and candle to 5 minutes Interval. You can clearly see in this time scale how the 3PB finds the reversals throughout the day. Since time is missing you can't see that the 3PB is a lagging indicator, meaning that since the reversal signal takes time to confirm, you will be getting into the trade late. Traders feel that the safety of the 3PB signal is worth getting in a little late.

Figure 2E 3 Point Break Workspace plugin chart 5 minutes

Figure 2F Candlestick chart 5 minutes

3PB Preferences

The ErlangerQuote 3 Point Break Plugin has a few special features. Right click on the chart and select Properties. You will see there are two colors for bars: Today's bars and All Other Days bars. Today's bars refers to price changes that have occurred in today's time frame, while the All Other Days bars refers to changes that occurred previous to today's bars. The default uses green and red for Today's bars and black and white for All Other Day's bars. Since time is missing from the horizontal axis, this feature helps you determine what bars are related to today and which are not.

Figure 2G 3 Point Break Preferences

You can control the Interval that a 3PB chart covers; in the above examples we show a Weekly, Daily and 5 minute Intervals. Note how much more detail is revealed in each successive chart.

Conventional Trading Wisdom

When trading with the 3PB we look for reversals as a signal that a trend has ended. A reversal occurs as described previously when a bar of the opposite color extends above or below the top or bottom of the last 3 bars low or high. The reversal is given a label and that label can be given a background color so it stands out from the price marker. In the charts above we have made the reversal marker a blue color. The Reversal marker has the letters Rev in front of the price. A reversal triggers an alert in RQ and may also have any sound attached to that alert.  There is a check box called "Show 3PB bars after completion (close of bar). If this is checked the bars are shown after the close of the bar, while if its unchecked the bars are displayed before the close which means they may be inaccurate if the bar changes its price before it closes.

The Breakout marker has the letters BO displayed in front of the price. It tells us when the last three bars have exceeded the previous low and indicates the trend is underway. Most experts, including Steven Nison, recommend using the 3PB with a Daily indicator or a Weekly indicator for entering and exiting.

Bid Ask

A bid ask chart does just what it sounds like, it plots the bid and the ask of a security. The chart below shows the results of the Bid Ask workspace plugin for Human Genome Sciences at the end of a trading day. The blue line shows the bid and the red line shows the ask. A Bid Ask is a tick type chart, meaning that it follows and displays every bid and ask as it occurs. Below the Bid Ask chart is a Time and Sales sheet that you can use to identify the bids and asks on the chart. The two figures below where snapped at about the same instant

You can see that the day ended with a high bid of 164 3/8. If  you look at the time and sales you cans see that at about 18:24:08 (2 hours and 24 minutes after the market should have closed) we see the best ask recorded for the day at 164 3/8. What is amazing is how often the last bid and ask are exchanged after the market closes.

Figure 3A Bid Ask Chart at the end of a trading day

 

Figure 3B Time and Sales sheet at the end of a trading day

 

The preferences for the Bid Ask chart are shown below. You can see that you can control the BG Color or background color, the Text Color and the colors of the bid and ask lines. You can decide if you want to display the bid, ask or both, as well as turn on and off the main grid with Show Bid, Show Ask and Show Grid. If he bid and the ask stay the same value and you do not wish the chart to continue to scroll you can check the Progress on Price Changes and it will not scroll when the bid or ask are the same. This is useful when you want to see more detail on the chart.

 you wish to see the changes price appear on the chart.  The Center Bid/Ask checkbox will make sure that the bid ask is always centered so you can see it at the right side of the chart. This may make other parts not show up unless you scroll the chart backwards.

You may be interested in seeing the actual trades in your bid ask chart and Show Trades Between Bid/Ask displays a small dot that shows trades that where inside the bid and ask, while Show Trades Outside Bid/Ask puts a dot for trades that where outside that range. Both of these settings allow you to pick the color and the thickness of the trades that occur outside and inside the bid ask.

The area marked Volume on the dialog is for controlling how Volume is displayed. If you check Separate Bid/Ask Volume you will see the bid and ask volume separated. If Use Trades for Computing Volume is checked the volume will be based on just actual trades. If you check Use Bid/Ask for Computing Volume than bid and ask will be included in the totals  You can have both of these on and you will get the total trade volume plus bid plus ask volume. You can also control the color of the regular, bid and ask volume lines from this dialog as well as the thickness of the lines. Finally the Font can be changed.

Figure 3C Bid Ask Chart Preferences

Market Profile

The Market Profile Plugin [ 1] is one of those chart types that is so strange when you first see it, that if you had to figure it out by study with no manual to guide you, would take a very long time. An enigma wrapped in a mystery? Only until its explained, then it will make you smile when you see how it works. Look at the Market Profile chart below and compare it to the candlestick chart below it. They are both set to 30 minutes, and in fact a Market Profile chart must be one of the following: yearly, monthly, weekly, daily, 60, and 30 minutes. If you select any other value they will be moved to the closest value in this set. The chart is one of Humane Genome Sciences.

Bottom line is that the Market Profile organizes market activity into a logical and meaningful format that can be read and understood.

Mechanical Viewpoint

Lets first understand the mechanical action, then we can learn about the more sophisticated ideas behind this system. The figure below is a 30 minute chart, so we see exactly 13 bars per day in the candlestick chart (6 1/2 hours in a trading day is 13 30 minute bars). In the market profile there are 13 small boxes with letters in them from A to M, each box has a different colored background. Each letter represents a half hour period of the day so A is from 9:30 AM to 10:00 AM, B is from 10:00 AM to 10:30 AM and so on. With the coloring in the defaults, dark colors are at the beginning letters, while bright colors are in the later letters.

Each letter represents a range of prices. For example note in the chart below (which is enlarged a bit to be easier to see) for HGSI on Thursday, the range of the first half hour of trading is mostly showing the letter A. It extends from a low of about 152 to a high of about 158. But then we see the letter B continues on up to about 163, then there is another letter K above that. How did those get there?

When the B bar was drawn in its 2nd slot over, it went from 156 to 163. The bar was compared to the A bar. The part of B that did not overlap A was drawn at the 2nd bar location. The part that overlapped the A bar was drawn on top of the A bar (like it was slid over to the right). If you look closely at the figure you can see that is exactly what happened.

The C bar was the 3rd bar to draw. Again its range was compared to the range of the bars to its left. Its range did not go below the B bar but overlapped B from about 157 to abut 163 and so it was drawn in location in that place. So each time we notch to the right in time, we compare the respective bar for that slot and see how is range compares to the range of previous bar. Where they do not over lap we draw the new bar, and where they overlap we overlap the new bar on the old bar. 

Now look at Thursday again. Note how the letter M appears across the top of every bar for that day. You can see what happened when you compare to the candlestick for Thursday. Towards the middle of the day the price range of HGSI started to move up and exceed the previous highs. M is the last half hour of the day and its range exceeded each previous bar's high. As it moved up it propagated down the line, testing against previous bars and overlapping or overlaying when required. Look at Tuesday, here we see the last half hour of the day has a range that exceeded the daily range of every previous half hour except the first.

Figure 4A Market Profile chart, 30  minutes

 

Figure 4B Candlestick chart, 30  minutes

 

Essentially the Market Profile is measuring time price opportunities and attempting to reveal them in a way that is easy to view. To make this even more effective, the creator of this indicator, J. Peter Steidlmayer and the Chicago Board of Trade (CBOT), spent four years working on it and coming up with various "profiles" in which a trading day can produce. You can learn more about these in an article that appeared in Stocks and Commodities magazine, Vo. 5.11 (352-355) called Market Profile and Market Logic Part 1 by Thomas P, Drinka and Robert L, McNutt. You can buy this article at  http://store.traders.com/traderscom/-v05-c11-marketp-pdf.html. If that link does not work You can also go here and search for "Market Profile" http://search.traders.com/Tanalysis.acgi$search.

 

Preferences

The Preferences for the Market Profile chart can be seen below. Essentially you can control the foreground and background colors for the 13 letters from A to M, as well as the foreground and background for the chart itself.

 

Figure 4C Market Profile Preferences

Point-n-Figure

Point and Figure charts are unlike traditional charts in that they do not use time as a variable (however they do scale with time as we will see). The PNF in ErlangerQuote is enabled by  File->New->Tenlights Workspace Point-n-Figure. Rather than having price on the y-axis and time on the x-axis, PNF charts disregard the passage of time and display price changes on both axes. This is similar to Kagi, Renko, and 3 Point Break charts. The chart below shows a Point and Figure chart for Apple with a Daily interval. You can see that the chart is made of X's and O's.

Figure 5A Point and Figure chart for Apple, Daily

 

Box Size and Reversal Amount

The Point and Figure chart has a special preference called the "Box Size". See Preferences dialog below. This value, typically between $1 to $4, is used to decided when to plot an X or an O. The rules are this: when prices rise by the box size, an X is displayed and when prices fall by the box size an O is displayed. If the prices rise or fall by less than the box size nothing is drawn. Pretty simple.

In a PNF chart a column can contain either Xs or Os, but it never contains both Xs and Os. In order for a new column to be drawn (changing from an X to an O column or vice versa), the stock price must reverse by what is called the "Reversal Amount". You also set the reversal amount in the Preferences dialog box. (Note that some programs multiply the reversal amount by the box size to come up with the number of points required to cause a reversal, in ErlangerQuote the reversal amount just controls how many points are required to cause a new column to be drawn.)

Convention Trading Wisdom

For example, if the reversal amount is 2.00, then prices must reverse in direction by 2 points in order to change columns. So if you are viewing a column of Xs and the price falls by 2 points, you will change to a column of Os. Likewise if you are in a column of Os and the price rises by 2 points, you will see a new column of Xs form. The idea of the reversal is that a changing of columns tells you when there is a change in the trend of prices. When a new column of Xs appears, it shows that prices are rallying higher and the bulls are wining. When a new column of Os appears, it shows that prices are moving lower and the bears are wining.  The common trading practice is to use the close to decide if prices have changed but some people like to use the high and low prices to decide if prices have changed enough to display a new box.

In a qualitative way, Point and Figure charts show the underlying supply and demand of prices. A column of Xs shows that demand is exceeding supply (a rally); a column of Os shows that supply is exceeding demand (a decline); and a series of short columns shows that supply and demand are relatively equal. There are several chart patterns that regularly appear in P&F charts and ErlangerQuote will give alerts if these are created by price movement. These include Double Tops, Double Bottoms, Triple Tops and Triple Bottoms. The ErlangerQuote PNF Plugin can be set to trigger an alert when any of these four conditions are met. The figure below shows a double bottom on Redback Networks which gave an alert.

Figure 5B Point and Figure chart for Redback Networks showing reversal

The preferences are shown below for the Point and Figure chart.

Figure 5C Point and Figure Preferences

To see the importance of box size, examine the chart below for Human Genome Sciences HGSI. What is happening here is that the box size is set to the default of $1. Because a) HGSI is an expensive stock and b) it has a great deal of volatility, the boxes are all scrunched together to fit on the screen vertically. In the following figure we changed the box size in the preferences to $3 and now we can clearly see the PNF chart at work.

Figure 5D Point and Figure chart for HGSI, Daily

 

Figure 5E Same Point and Figure chart for HGSI with 3 for box size

Setting up the PNF

The ErlangerQuote Point and Figure plugin has a number of innovations that make it useful for trading. First Today's and All Other Day's prices can be displayed in different colors. Since time is not marked on the horizontal axis, this coloring helps to differentiate columns from today and columns from previous days. The default is to draw today's prices in green for Xs and red for Os, while all other day's prices are drawn in black for Xs and light gray for Os. One set of colors shows today's colors and another shows all other days. Therefore if you see a stack of green Xs you know that the price has been rising TODAY in this interval, while a stack of gray Os means that the price was falling in a previous day.

Sometimes prices gap up or down which would cause a large number of X and Os to be drawn in one column. The PNF Plugin allows you to color the opening an close gap in a different color, the default is blue. Thus a stack of blue Xs means the price gapped up on the open. Keep in mind that you may see a column of Xs or Os that has blue X/Os mixed with green/red or gray/black X/Os. This simply means that after the gap occurred price changes continued to follow the gap and did not reverse sufficiently to change to a new column. Again column changes till you that a major trend has reversed.

Other features of the ErlangerQuote PNF are the Method box which tell you what method was used to determine when an X or O should be drawn. The common methods are Open, High, Low, Close, and High/Low. Close is the most popular way to determine the point at which to draw a new box. While Open, High, Low and Close give similar results using High/Low will make the display change drastically.

The Breakout and Reversal markers are drawn on the Y axis to help you see the price at which the boxes are drawn. The current price is drawn in a different color.

Time/Sales

The Time and Sales sheet is a plugin that shows every single trade, bid, ask, best ask, best bid, and all corrections a mistakes that occur in a security. You can see the time and sales by selecting File->New-Tenlights Workspace Time and Sales. You will get a display similar to the one below. If you create this sheet when the market is open, and there is significant trading in the stock that is displayed, you will see the rows in the chart moving very fast as the new bids, asks and trades enter from the top of the sheet and exit at the bottom. Actually the sheet is scrolling, and all the previous data is still available if you use the cursor keys to scroll down. In the screen below we captured the tick chart for Apple so it could be compared to the Time and Sales sheet. To compare these notice that from about 1401 to 1402 in the chart and see if  you can find the series of bids and asks that correspond to it in the T&S plugin.

Figure 6A Time and Sales Report

Note for example that a series of shares traded at 61 3/4 until 14:01:42 and then dropped to 61 11/16 (1/16 lower) and then oscillated back and forth between these two prices. You can easily see this in the chart and with some study you can see it in the T&S.

Figure 6B Tick chart to compare with Time and Sales

Preferences

There is a column called BATE (Bid/Ask/Trade/Exchange) which tells what kind of event happened for the row it is in. You will see works like Best Ask, Bid, Trade, Correction, etc. Each row is colored and the  colors in the T&S indicate what kind of trade occurred how it related to previous trades.

These colors are set in the preferences dialog box which is accessed by right clicking on the T&S sheet and selecting Preferences. The colors are set up in the area called Highlights. If there is a row that contains a bid it is displayed in dark gray. If there is a bid that occurs at or below the bid it is displayed in light blue, while if it is at or above the ask the trade is displayed in light green. If the row is green or red its considered a High trade, while if its red its considered a Low trade. At the end of the day there are lots of corrections and mistakes that are fixed, and these are signaled by a red row containing the word Canceled or a dark green row

Figure 6C Time and Sales Preferences

Filter Properties

If you right click and select Filter on the T&S sheet you will get the dialog box below. This sets the filtering properties for the T&S sheet. The default is to have all types of trades displayed, but this box lets  you set it up so just a Trade, Bid, Ask or Info or any combination is displayed. You can filter by Volume so only those events with a volume greater then the number you enter are shown. You can also filter by exchange and price, even set the max and minimum prices that you will allow to show up.

Figure 6D Time and Sales Filter Preferences

Below is a Time and Sales sheet for the end of the day. Notice how it is filled with what are called "Form T" type of trades. These are "after hours" trades that where in progress during trading and are just now hitting the report. There is also a red "Cancel" type order, again this is from events that may have transpired earlier and are just now getting recorded.

Figure 6E Time and Sales at the end of the day

Equivolume

The Equivolume Plugin is covered in Chapter 6 Charting the Future.

Time/Sales Tone

The Time/Sales Tone plugin is a clever way to monitor the movement of the Time and Sales sheet without having to watch it. What this plug in does is convert the bids, asks, highs and lows MIDI tones that you can hear in the speaker. The fact that Midi is used for this feature means that the sounds will have a somewhat musical quality because Notes from the musical scale are used, rather then just audio frequencies. When  you select this plugin you get a time and sales sheet that looks normal except it has the words Time/Sales Tones in its title bar as shown below. The T&S works like a normal T&S. But if you right click on it you will see a new menu item (Sounds). If you select this you get the Sound preferences as shown below.

Figure 7A Time and Sales Tones

As you can see in the dialog  you can set up the note for the Low, Mid, and High Note using the drop down menus. You can set a note to appear when there is a Bid, an Ask, a New High, and a New Low. The Midi device is set  in the drop down and the Instrument can be one of as many as are allowed by your Midi sound board. Note not all sound boards have Midi circuitry in which case this Plugin will not work.

Figure 7B Time and Sales Tones Preferences

After you have selected  you Midi Instrument and the notes you wish from the drop down, be sure and right click on the time and sales window and select Play to start the tones. You can use the same Play menu item to turn them off.