Chapter 8. Chart Plugins

This chapter explains ErlangerQuotes’ chart plugins, its two special kinds of custom studies-formula and color, and finally its powerful line tools.

Chart Plugins

Charts make the stock market world go round; at least it seems that way. And so as traders or investors we spend a great deal of time cajoling and fighting with our charts, trying to get them to do what we want, what I call raging against the chart. Chart Plugins are a way to make charting less of a fight. We learned about plugins specific to quote sheets in chapter 4 Quote the Erlanger. We also have seen there are specialized Workspace Plugins accessible from the File->New menu that we will discuss in a later chapter. However there are many powerful and helpful chart plugins shown in the figure below. Right clicking on a chart and selecting Plugins accesses them. This brings up a menu of plugins that are especially designed to work with charts, as seen below. Let’s learn about each one.

 

Figure 1 The Chart Plugin menu

Volume Chart Plugin

The chart volume plugin is identical to the volume study except the up and down volume is indicated in a specific color. The defaults are blue is the up color and red is the down color but you can change these in the Preferences by right clicking on the study. As you can see in the figure below the volume study for CSCO shows that the last four days have been up volume days because the volume spikes are blue. You can also see some historical signals that the volume bars gave back in the beginning of April when the stock dropped in price precipitously. At the same time the volume increased.

Figure 2A Chart Study Volume Plugin (Up Down Volume)

 

Figure 2B Chart Study Volume Plugin Preferences

 

 MACD Trend Chart Plugin

This is perhaps one of the most used of all chart plugins. The MACD Trend plugin essentially provides the SAME information as the MACD study that is found in Chapter 7 Chart Indicators and Studies.  We learned in that chapter that the MACD is a special kind of momentum indicator based on the crossovers of three moving averages. The difficultly in using the MACD study comes about because you must carefully detect when the fast moving average of the MACD crosses the slower moving average, and the moving average must be above zero. Needless to say it takes a trained eye to notice those special conditions. The MACD Histogram can help, it shows little hairs rising and falling above and below the centerline of the MACD. Yet it is still not the most obvious indicator in the world. That is until…drum roll….the MACD Trend Plugin! Okay maybe we are getting carried away, but we think this plugin is pretty magical. The idea behind this plugin is simple: when the MACD is trending up paint a vertical color strip, when it’s neutral paint a neutral color strip, and when it’s trending down paint a negative color strip. If you pick green for trending up, yellow for neutral and red for trending down, you get the results shown in the figure below.

 

Figure 3A The MACD Trend Plugin

As you can see in the Preferences dialog, just like in the traditional MACD chart study, you can set the length of the Fast, Slow, Smoothing and Source values for the MACD, as well as the colors of the trending and neutral bars.

 

Figure 3B The MACD Trend Plugin Preferences

In the chart below we have dragged a traditional MACD chart study on top of a MACD Trend Plugin. Note particularly for CSCO how small the movements of the trend that occurred around August are amplified by the color bars. This makes it apparent that since the first week in August CSCO has been in a downtrend, but around the 25th of August it turned around and is now in an uptrend. You might find it instructive to compare the color bars of the MACD Trend plugin with the fast and slow line of the line chart MACD study. Note how it follows the histogram when the histogram is large enough to view.

Figure 3C The MACD Trend Plugin and the MACD chart study overlaid

Historical Volatility Chart Plugin

Historical Volatility is a difficult value to find as an indicator except in the highest end programs. What historical volatility or HV measures is the amount of price change in a given time frame and expresses it as a percent between 0 and 100. To calculate the historical volatility you simply subtract the lowest low from the highest high and divide the result by the lowest low.

There are various debates about the fact that the volatility of higher priced stocks may be higher than that of lower priced stocks, but most agree that the volatility of a stock is as important, if not more important, than the trend. Historical Volatility has three well defined time frames: long term (90 days), medium term (25 days) and short term (10 days). You can set these values in the Preferences.

In the figure below for the daily interval, the historical volatility of AOL has dropped from a high in March of around 95 to a current low of 43. What does this mean? We can't say for sure what it means until we know more about what AOL's volatility has been like in the long term, and compare it to where it is now. So let’s see how to do that.

Figure 4A Historical Volatility Plugin

 

Figure 4B Historical Volatility Plugin Preferences

In the figure below we have changed the stock to Apple and adjusted the chart so the time frame starts at the beginning of the year 2000, by clicking on the Shrink icon on the chart toolbar. We added three volatility plugins, each with a different interval, red is 10, blue is 25 and magenta is 90.

If you look closely you can see that right now Apple's 90 day volatility is the lowest it has been since the beginning of the year. This would imply that Apple might be ready for a breakout to higher prices but it might also mean a break down to lower prices because volatility does not tell you direction, it tells you how the prices are changing. And what it’s saying is that prices are not swinging up and down like they did at the beginning of the year. This is interesting when you see how well it’s risen in the last month. This might imply that Apple is going higher.

You can also see the 25 and 10 day HV's are currently at lows. More investigation into Apple's weekly history would reveal more about how its price fluctuates over longer time frames.

To find out more about using volatility in trading, I recommend taking a course from the Guru of option trading, George Fontanills, through his Optionetics classes. You can find the classes at http://www.optionetics.com. Also check out his options book The Options Course--High Profit and Low Stress Trading Methods, Wiley.

 

Figure 4C Three Historical Volatility Plugin studies with different time frames of 10, 25 and 90 days

Bar Lines Chart Plugin

The Bar Line plugin has inherited a name that poorly tells the story of what this little tool does. Traders are frequently interested in comparing today's prices to yesterday's high and low, close and open. These previous values often set resistance and support levels, and if a new price tests these levels and breaks through, the trader wants to be ready to move if it has the strength of a real breakout.

The Bar Lines plugin displays horizontal lines that represent the highs, lows and closes that previous and current bars have reached. For example, in the chart below we can see a chart of HGSI (Human Genome Sciences Inc) with a daily interval. The Bar Lines plugin has been inserted and only the PrevHigh and PrevLow Data Points have been enabled to keep the chart easy to read. In the figure below the chart labels the previous high and previous low in a red background with white text on both the left and right side of the chart. The right side is abbreviated to keep the width down. These lines neatly coincide with the candles for the previous day's bar. In the case of HGSI the low of the current day never reached the close of the previous day which to many traders is a strong uptrend signal. This is powerful, but this plugin offers even more flexibility.

Figure 5A The Bar Lines Plugin showing just Previous High and Previous Low

 

In the chart below the Interval is set to 13 minute but the Bar Lines plugin has not be altered, Notice that it is still showing the PrevHigh and PrevLow for the Daily interval. This gives you a unique foothold on the ups and downs of the day. In this example you can see that HGSI started testing the previous day's high in the first four 13 minute bars of the day. It then took a dive around 10:30AM, and from there it began a steady march up to the previous high (173 ½) and hung right under it most of the day. Around 2:30 something kicked HGSI over the top and it broke through on strong volume and finished the day above its previous day's high. This was a very bullish sign, especially when you consider that this was on the Friday before a 3-day US Labor Day  holiday.

Figure 5B The Bar Lines Plugin showing the DAILY Previous High and Previous Low on a 13 minute display

 

The figure below shows the Bar Lines Preferences dialog box and the collection of Previous and Current lines that can be drawn on the chart. We show the Previous Bar High and the Low as checked.

The dialog allows you to control the following events:

Previous Bar Open, High, Low, Close

Current Bar Open, High, Low

The Last is normally displayed as the primary price chart label, so that there is no line for Last or Close. You can also control where the labels are displayed on either the left or right side. You can even place the labels in the middle of the chart. The prices and labels can be turned off. Finally the Interval of the Bar Lines can be set in this dialog box. This is the value that the lines will respond to, regardless of what the chart interval is set to.

Figure 5C The Bar Lines Plugin Preferences

 

In the chart below we turned on just the current open and the previous close. Note how the values coincide with the bars of the last and previous candles.

Figure 5D The Bar Lines Plugin Previous Close Current Open

 

In the chart below we turned on just the current high and the current low. Note how the values also coincide with the bars of the last and previous candles. Using the tabs on the chart you can switch to different stocks and the Bar Lines will retain their meaning, adjusting for the stock that is showing.

Figure 5E The Bar Lines Plugin Current High Current Low

Directional Movement Histogram Chart Plugin

The Direction Movement Histogram takes the traditional Direction Movement indicator a major step forward. First, it makes the actual trend more obvious by showing the up trending and down trending in the form of a colored histogram. When the histogram is green the trend is up and when it’s red the trend is down. Additionally the ADX is plotted on top of the histogram and on a centerline so you can see its direction. This may be turned off.  For comparison purposes you can see the more traditional DI indicator below the DM Histogram.

Figure 6A Directional Movement Histogram Plugin

 

Figure 6B Standard Stogy Directional Movement Histogram Plugin

 

Figure 6C Directional Movement Histogram Plugin Preferences

 

Higher High - Lower Low Chart Plugin

This plugin is based on a simple idea. When the current bar's "Close" closes above the previous bar's "High", the plugin bar is painted the Trending up color (green) because that is considered a breakout to the upside. When the current bar's Close closes below the previous bar's Low, the Trending down color is painted (red), because that is a breakout to the downside. When neither condition is true the neutral color is painted (yellow). So in the chart below we can see that Apple started a serious surge up around the last week in August and closed every day above the previous high, so all the bars are green.

Figure 7A Higher High Lower Low Plugin

The Preferences for the Higher High Lower Low plugin is shown below. You can control the Trending Up, Trending Down and Neutral colors. The interval for this plug in is controlled by the chart interval.

Figure 7B Higher High Lower Low Plugin Preferences

Bar Line Retracement Chart Plugin

The Bar Line Retracement Plugin is a tool that is especially useful to 3 Point Break and Fibanocci fans. This plug in draws a series of horizontal lines that are calculated automatically to set specific Fibanocci levels for the chart in question. The levels adjust themselves to the swing of the chart, putting the highest levels at his peak and though.  On the 13 minute chart below you can see the various levels are designated in color.

Figure 7C Bar Line Retracement Plugin

In the figure below is the Preferences dialog for the Bar Lines Retracement plugin. From this dialog you can control the number of levels, the percentage they represent, their color, thickness and any name tag you would like to add (in addition to the T1 to T13 that we include with the plugin). You can have the levels labeled in the right, left or center of the chart. You can also control what is displayed, such as Prices, Source of price (previous close for example), Percentages, or Name Tags.

Figure 7D Bar Line Retracement Plugin Preferences

 

Commodity Channel Index Chart Plugin

The CCI plugin was developer by Donald Lambert, and is used to measure the changes in a stock’s price from its statistical “mean”. The plugin plots a line that varies between -100 and +100 as shown in the figure below so that these two lines represent the –100 and +100 levels. The CCI is interpreted so that when the blue line is high it means that prices in the stock are high compared to the average prices, and if the blue line is low it means that prices of the stock are low compared to the average prices. You can use the CCI on any kind of security not just commodities.

You can use the CCI in two ways; one as a indication of a divergence, and as an indicator of overbought or oversold condition. In the CCI a divergence occurs when prices in the stock are making new highs while the CCI fails to surpass its previous highs.  In the chart below you can see the line from early April to late May shows prices are going up but the CCI below shows that its second peak did not surpass its previous peak, indicating a potential price breakdown is about to occur and this kind of divergence is usually followed by a correction in the security's price.

In the second way to use the CCI, note that it typically oscillates between ±100. You can then use the CCI as an overbought or oversold indicator. In this situation, readings above +100 imply an overbought condition (and a pending price correction) while readings below -100 imply an oversold condition (and a pending rally). In the example below of the Standard and Poor’s 500 Composite (symbol AMEX:SPY) the CCI is in the overbought region, cautioning that it may correct to a lower (or higher) price.

 

Figure CCI-1 The Commodity Channel Indicator Plugin

The Commodity Channel Indicator is a good example of how easy it is to create your own indicator. All you need is some way to plot a graph of some dynamic aspect of a stock’s parameters—price, volume, bid, ask, whatever, and then come up with a name that does not really fit what the indicator does. Some of the most clever indicators use the name of the originator, which is even more obscuring, further helping guarantee the success of the indicator.

Preferences for the CCI chart plugin are shown below. You can control the Line color, the Line thickness and the Length in intervals (here 21 days). You can also set the upper and lower levels of the CCI Bands, here they are set to 100 and –100, you can also control the color and thickness of the bands. Finally the method used to calculation the CCI can be control as the average of the High, Low and Close, or the Open, High, Low and Close.

 

Figure CCI-2 The Commodity Channel Indicator Plugin Preferences

For more information on the CCI see the October 1980 issue of Commodities Magazine.  

Stochastic RSI Chart Plugin

A Stochastic is a oscillator indictor that compares where a security's closing price is relative to its price range over a given time period. It produces a signal that tries to project when prices are grouping near their lows in an upward moving market or grouping near their highs in a downward market. The peaks and valleys of these signals may reveal turning points in the stock’s pricing. The Relative Strength Index (RSI) is also an oscillator indicator but it specifically represents the internal strength of the stock, and tells when the stock may be overpriced or underpriced. It uses a fairly complex formula that can be found in Welles Wilder’s book, New Concepts in Technical Trading Systems. RSI is popular for measuring divergence, such as when the stock is making new highs but the RSI is failing to break through a prior high.

The StochRSI is a combination of these two indicators, with the %K calculation replaced by the RSI of the stock. The results of the StochRSI indicator are shown below. The value of the StochRSI varies from 0 to 100. There are two bands associated with the StochRSI, the upper shows overbought conditions and is set to default at 70 and the lower shows oversold conditions and is set to default at 30.

 

Figure SRSI-1 The Stochastic RSI indicator

Below is the preferences for a regular Stochastic study, which you can see uses two signals for its calculations, the %K and a %D. The %K signal is calculated by finding the highest high and lowest low over a period (like 14 days), and comparing it to today’s closing price to come up with a value (%K). The %D is the second signal and is moving average of the %K. There may be different methods used in calculating a %D moving average, such as exponential, simple, time series, variable, weighted, but we use the default of simple for the smoothing.

 

Figure SRSI-2 The Stochastic Chart Study Preferences

The Stochastic RSI Preferences are very much like those of the Stochastic example there are no upper or lower band colors (you can control the band line color however). The %K signal is replaced with the length of the RSI signal, in this example it’s set to 8.

 

Figure SRSI-3 The Stochastic RSI Chart Study Preferences

 

MoneyFlow Chart Plugin

The MoneyFlow indicator helps to show money that is flowing into or out of a stock. It is similar in many ways to the Relative Strength Index, but differs in that volume is used in the calculation. The MoneyFlow indicator can be seen below in the 60-minute chart. Note it has a peak around the 22 of April 2001, possible predicting the fall on the 23.

Figure MF-1 The MoneyFlow indicator

Use this indicator to look for divergences, e.g. differences between the indicator and the price action. For example in the chart below you can see that since May the MoneyFlow indicator has been dropping for the SP500 Index (Spiders) but the prices have been increasing. This is a classic divergence. Also use this indicator to look for market tops when the indicator is about 80 and bottoms of markets when its below 20. The MoneyFlow indicator below at 9.6 would indicate that we are at a bottom. However the falling value may indicate a divergence. However the divergence may be saying that the market is about to change and move up.

Figure MF-2 The MoneyFlow Indicator showing a divergence

 

The preferences for the MoneyFlow chart indicator plugin allow you to change the line color and the length of the period.

 

Figure MF-2 The MoneyFlow Indicator Preferences

 

Color Studies

Color Studies are one of the most innovative features of ErlangerQuote. The idea of a color study is to allow you to set up your own bar colors that are painted according to formulas that you have created. For example: you could easily mimic the operation of the built-in MACD Trend Plugin, except that you can also tweak the formulas even further. More importantly you can make a color study using any formula you wish. For example you can set up a breakout color study that paints green when the stock closes above the 50-day moving average and red when it closes under the 50-day MA. A 50-day and 13-day version of this is shown in the chart below:

Figure 8A Color Studies on a daily interval

You can click on a different interval tab and the study will adapt as shown below. Here we see a five-minute chart of AAPL. In this case the 50-day moving average is actually a 50 bar moving average, and if the bars are 5 minutes, then this is smoothing 50 of them (250 minutes worth of time which is about 4 hours). The color study on a different time frame is still performing a long term smoothing action

 

Figure 8B Color Studies on a 5-minute interval

The point here is that regardless of how you specify the Interval parameter in the formula (D, 60, W, etc), the actual Interval used by the study is set by the dropdown menu in the Color Study Builder dialog, which we will study later. In this case it is set to Default.

The formula for the 50-day MA breakout is as follows:

Close(D) > ma(Close,50,0,D)

This formula says when the close of the day is greater than the 50-day moving average, make the condition True. But how do we turn this into a color? 


Color Study Builder

If you right click on the chart and select Studies->Color Studies you get the dialog box in the Preferences below. Let’s examine how this works. The dialog is divided into an upper and lower area. The upper area looks a lot like the Formula Builder that we use for adding formulas to quote sheets. The lower area is unique in that it allows you to associate a formula with a color and then to add it to a list of formulas that are evaluated. Lets start with the top area. We want to set up a color study so that when the formula Close(D) > ma(Close,50,0,D) becomes true, the color green is painted. So we enter the formula into the Actual Formula area. We can either type it in, or we can load it from a saved name on the Saved Formula dropdown men. Now that the formula is in the box, we select a color with Line Color, here we set it to a light shade of green. Next we set the Interval dropdown to Default so it uses the Interval from the chart. You can also override the interval on the chart by selecting a specific interval from this menu.

Now you have a formula and a line color so you click the Add button in the lower area of the dialog. This will add the formula to the color study area and put a small rectangle containing your Line Color in front of the formula.

Now change the formula in the upper box to:

Close(D) < ma(Close,50,0,D)

 

Then select a light shade of red for the Line Color and click on Add. The second rule for this color study will appear. If you wish to modify the color or the formulas in the color study then simply click on the formula to select it, change the Line Color or the formula text, and then click on Update. The Remove button removes the formula entirely, while the MoveUp and MoveDn buttons control the order of the formulas.

Figure 8C Color Studies dialog box

What is interesting is that the formulas in the color study are interpreted from the top to the bottom, so first the up-trending movement is tested, followed by the down-trending.

More Color Study

Color studies can be a lot more elaborate than the first example. Consider the VIX color study below. The VIX.X is the volatility index. It’s a measure of a collection of SP500 stocks and reflects their overall volatility average. A high VIX usually signals a market bottom while a low VIX signals a market top. There is a saying "When the VIX is high its time to buy (market bottom, buy) and when the VIX is low its time to go (market top, sell). The range of the VIX is from 1 to 30. Let’s say we want to set up a VIX color study with these bands:

28 to 30 = Green

If the VIX is above 28 a green vertical bar is drawn. This is a good time to buy stocks; prices are at a market bottom. Good time to sell Puts, gives the highest premium.

 

24 to 27 = Blue

If the VIX is between 24 and 28 the line drawn is blue. This last line fills in the gap from 24 to the start of green at 28, a sort of no-man's land where you can't derive much about buying or selling.

 

21 to 23 = Yellow

If the VIX is between 21 to 23 a yellow line is drawn, indicating that the VIX is approaching a market top level. This is a time to be cautious about buying stocks as you may be nearing a market top.

 

1 to 20 = Red

If the VIX is less than 20 a red line is drawn indicating extreme danger, market is at a top, good time to sell stocks, buy back Puts.

 

We created formulas that accomplish these bands of colors and VIX levels as follows:

Close(D,,VIX.X)> 28 Green

Close(D,,VIX.X)< 23 Yellow

Close(D,,VIX.X)< 20 Red

Close(D,,VIX.X) >= 24 Blue

 

It’s important when you look at this list that you imagine the painting occurring from the top down. So if the VIX is greater than 28, the line is painted green. If the VIX is less than 23 it is painted yellow. If it is less than 20 it is painted red, and if it is greater than 24 it is painted blue.  The second important fact to notice is that we entered the name of the VIX right in the equation. What this does is allow us to display the VIX on any chart and be assured that the study we are seeing is for the VIX and not the volatility for the symbol being charted (which would be the case if you left the symbol VIX.X out of the formula).

As you can see in the example below the VIX study is showing yellow since July, which indicates a cautious condition.

Figure 8D VIX Color Study

 

The possibilities for applying the Color Study plugin are enormous. You can use the AND operator to set up multiple conditions that must be met for a line to turn a certain color. For example we could combine two moving averages so that the line would only be painted if the Close were above the 13-day AND the 50-day moving average. You could use several colors, so for example various levels of volume create a spectrum of color from red to violet. See Help->Color Lessons->Using Color to Help Understand Formulas for an additional example.

Formula Studies

If you have made it this far, you are near the end of our raging against the chart. Maybe we should have called it Rave About the Chart, but the fact is charts in ErlangerQuote do a lot more then charts in your average stock program. Formula Studies, sometimes called Study Formulas to confuse our customers, allow graphing historical formulas in the formula engine. What are historical formulas? These are formulas that have historical data available for plotting. The data is on the servers and our engine can graph it on the chart. The other kinds of formulas are snapshots. These are ones that only give daily data, normally the current or last day. These Snapshot formulas can be placed on a chart. However, all you will see is the labels for these formulas in the Y axis area. This may often still be useful, as we shall see. In the chart below we used two Formula studies to graph the previous day's low and high on a 13-minute chart. This is a strategy often employed by day traders, who watch to see if the stock has moved above or closed above yesterday's close. Normally you would see if there was a Plugin that did what you want, so you could avoid having to write a custom formula, however if you want finer control than a plugin can give, you would turn to using a Formula Study.

Figure 9A PrevHigh and PrevLow Formula Study

 

To set this up right click on the chart and select Studies->Formula Studies. A dialog box will appear as shown below.

 

Figure 9B PrevHigh Formula Study dialog box

The top half of this dialog box is identical to the standard Formula Builder dialog. You can access saved formulas with the Formula Name dropdown menu and you can create new formulas with the Formula dropdown menu. In this case we have loaded the formula:

High(D,-1)

 

This essentially says display the high of the day, for the previous day (-1 is in the Ref parameter).  The bottom half of the dialog is set up as follows:

Interval - Daily

This dropdown setting will over ride the Interval in the formula. If you always want the High to be a daily high you would set this to daily as shown (D).

Color - Blue

Thickness - 2nd from thinnest line

This is the color of the line and the label that will represent it.

Axis - Right

You can place the axis for the PrevHigh on the right side or the left side of the chart.

Show Name Labels - ON

This checkbox turns on and off the labels on the axis.

Show Data Line - ON

This checkbox turns on and off the actual horizontal line that is drawn. It’s best to leave this on.

Show Markers - ON

This checkbox turns on and off the small arrows that connect the label to the line. Best to leave this on.

Extend Lines - On

This checkbox turns on and off the extending of the line to the future. You usually want this on.

Draw with Price Study - ON

This checkbox controls if the study is drawn on the price chart or under the price chart in its own panel.

Square Line Chart

This checkbox controls the type of chart that is drawn. It can be a line made up of dots, line segments, or a histogram.

Note: Since the high of the day may be far above your 3 minute chart you may have to drag the vertical axis to compress the Y scale and bring it into view.

Caveats of the Formula Study

There are a number of cautions you want to keep in mind when using the Formula Study. First understand that if you plot a formula on a price chart that has a wildly different value then the stock price, the graph may not show up. For example in the chart below we have three formula studies. There are two homemade moving averages using the square line chart type which gives the jaggy staircase-look and one MACDSig formula study in a panel. If you had selected the option to draw the MACDSig line right on the price chart guess what would happen. The chart would try to draw the study on the Price and since the study is so low it would draw it at the bottom of the chart in a horizontal strip that could barely be seen.

When the values of two studies are very different you want to plot the study in its own pane where it will have its own scale.

Figure 9C  Three Formula Studies: two moving averages and a MACDSig study

The chart below shows the formula study based on a non historical snap shot, in this case the bid and the ask. We set up this formula study so it was always set to daily and would allow us to see the daily bid and ask on a short-term 13-minute chart. When the market is underway the bid and ask labels will move up and down on the chart axis.

Figure 9D Bid Ask Formula Studies on a 13-minute chart

 

It should be pretty obvious by this time that formula studies are immensely powerful. You can find additional workspaces and formulas on the Gate.