Is this the future of candlestick charts and can you make money using them?
Reading a chart is one of the first things that people learn when they first start trading. I often realise how much traders take for granted when I show a friend or family member a candlestick chart of something like oil. All the different colours and blocks can seem meaningless initially until you explain that each candlestick represents all the action within a certain time period.
Unlike line charts, which are usually just based on the closing value, candlestick charts display so much more. In one bar you can see the high, low, open and close of a particular period of time.
Candlestick charts only really started to make an appearance in the 1990s as traders such as Steve Nison highlighted their benefits after extensive research in Japan. Candlestick charts are now de rigueur, but like all innovations, it doesn’t take long for the status quo to become upset when a new method appears on the horizon.
Over the last month I have been tracking a service which offers innovative charts that could really upset the apple cart if they take off in popularity.
Pip range bar charts
Traditional candlesticks are time-based, which means that each bar represents a set segment of time. On a page you might have one days action with each candlestick representing the high, low, open and close of every five minutes. The longer term trader might look at a chart with each candlestick representing 4 hours worth of action. The candlestick could be length if there was a lot of action in that period of time, or small if the price didn’t move much. Importantly the next candlestick wouldn’t form until the time was up.
But why do we construct charts based on time? Why should each bar represent 5 minutes action? Why not have each bar represent a certain number of pips and only move on to the next one when that pip limit has been reached? This is the question Trading FX asked and their innovative pip range bar charts are the answer.
Unlike traditional time-based charting, each bar represents action, not time. They have a variety of options available, but I’ll use the 8 pip range bar chart for the moment.
On the 8 pip range bar chart, each bar has a maximum range of 8 pips. Once the price has moved 8 pips, a new bar will form. If you have a fast moving market, you might get new bars forming every few seconds as the market moves 8 pips very quickly. In a slow moving market, it might take several minutes for the market to move 8 pips and therefore form a new bar.
It’s probably useful to do a recap and summary of the difference between time and pip range bar charts.
Time-based charting:
Each bar/ candlestick represents the action from a set period of time. The size of the candlestick will vary depending on the amount of action during that period. The disadvantage is that freak spikes can distort your charts and make your page hard to read.
Pip range charting:
Each bar/candlestick represents 8 pips worth of movement. In a fast moving market, a quick 80 move will result in 10 candlesticks being printed in a short space of time.
Example pip range bar chart
Below you can see a pip range bar chart in the upper window, with a time-based chart beneath it. In the pip range bar chart, each bar represents 8 pips worth of movement, while in the lower window you have a more traditional 3 minute chart with each bar representing 3 minutes of time. You can see how the pip range bar chart is much more smooth with no untidy spikes.
The Trading FX Service
The whole TradingFX.com service is more than just the pip range bar charts though. TFX is a trading community which uses the charts as its centre point, but there other things you can benefit from as part of your membership.
Your first port of call will probably be a free trial membership which provides you with Temporary access to the Live Trading floor. This live trading room uses the same Omnovia chat room software that Phil Newton uses with his Trading-Strategies website.
The live trading floor displays the pip range bar charts for four currencies with a special focus on one currency in particular (usually EUR/ USD). This means that all members can access the live pip range bar charts without having to download any software themselves. The live trading floor also displays the currency strength chart which I’ll explain in a little more detail later.
The disadvantage is that you can only view the default chart displays that the moderator is showing. This could actually be a real benefit as you get started, because it is easy to get lost in any new software when you first get hold of it. By spending some time watching how other people use the software, you get a better idea of its capabilities.
The chat room moderators are all based in the US, but TFX users come from all over the world. It also helps that there are some insomniacs amongst the moderators so there is usually someone in the room to help you out pretty much 24 hours a day. The idea is that there is at least one moderator to hold the fort during one of the major Forex trading sessions (Asian,London, US).
The moderators help you understand the suggested TFX trading strategies as well as outlining reasons for and against various trades. There is a nice community feel to TFX with moderators being patient with new members and existing members helping each other out. Derek, the lead trainer, also recently organised a trading buddy system.
Example live trading room
In the screenshot example below, you can see a typical live trading room. There are pip-based charts for four of the main currencies with the currency strength chart displayed in the middle. Apologies if you can’t see this, TFX had trouble converting it to a white background for me. Below all the charts you can see the text chat area. As well as using text chat, the moderators will often use the microphone throughout the session.
The Primary Cross Over system
TFX do state that the pip range bar charts are meant to be used as a confirming tool to your existing strategies, but for those who want to learn from the ground up, there are some off-the-peg strategies suggested that make use of the pip range bar charts.
The bar charts themselves come with a number of bespoke indicators that have been especially formulated to work with the pip range bar charts such as a special MACD indicator. This reformulated MACD shows momentum with a score of +/- 7 or 8 indicating overbought and oversold conditions.
The primary crossover system takes a four-pronged attack.
1. The first input is the trend as represented by the pip range bar charts. The advantage of the charts is that as each bar is the same length, your charts are less noisy, potentially allowing you to spot the trend momentum with more clarity.
2. The second input is the reformulated MACD crossing down from an overbought position or crossing up from an oversold position.
3. The third input is two moving averages crossing over.
4. The fourth input is price action around key areas such as support and resistance.
For further confirmation you can check out how the trade is setting up in different pip ranges.
In general the 8 pip chart is used for entries, while the 15 pip chart is your guide.
Another key feature of your Trading FX website is the currency strength chart which is used as an extra trade filter.
When trading a Forex pair like EUR/USD, you are trading the euro as the base currency and the dollar as the quote currency. The euro will also be trading against a whole host of other currencies as will the dollar, so it might make sense to double-check that the move you have just spotted on one currency pair isn’t just an isolated event.
The bottom line
Members can have full access the Pip Range bar charts on their personal PCs to do a variety of technical studies and unique display configurations. At the same time they can also access the trading rooms to discuss trades with the team, interact with the moderators, take classes and share ideas.
With the software you can set things up to your own liking or use default templates to spot the primary cross over trades better.
You don’t have to purchase the software and this is potentially a good thing depending on your budget. To join the service you need to pay a one off membership fee then monthly payments thereafter. Access to the software comes on top of all this so your costs could mount up.
Thankfully you don’t have to jump in at the deep end, you can start with a free trial of the live trading floor and feel your way from there. If you decide to join, it’s probably still better to start slowly and watch how the moderators use the software on the live trading floor before splashing out yourself.
Overall, there’s a lot to like about TFX. The moderators are extremely helpful and patient with group numbers small enough to warrant individual attention. The pip range bar charts are a fantastic innovation, I found them to be a very useful tool, as did other traders in the room.
There are lots of helpful training videos on the website, but I did get the feeling that TFX would be more suited to someone with a reasonable amount of experience rather than complete beginners. Some of the moderators use the pip range bar charts in conjunction with their own time-based chart studies. This is potentially a very powerful trading set up, but one which may confuse the complete beginner.
The software and live trading room are not cheap, but thankfully you have the ability to sample the service for free. There are regular webinars.
While in the room, there were a number of fellow traders who were using the software to great effect. Each person seemed to have their own spin on the strategies which is great, but may disappoint those looking for set strategies to follow. The instructional videos at the Youtube page are a great help, but some written documentation would also be useful.
Overall, I like what TFX have done and there’s clearly a lot of time and effort put into the new charting. TFX have something different here and I hope it goes from strength to strength. I recommend WRP readers take a look, especially if you already have a modicum of experience.
Contact Details:
Reprinted from:
What Really Profits?
Canonbury Publishing Ltd.
An Independent Review of Trading Systems, Stock Market Tipsters & Investment Strategies
Written By: David Evans
March 2009 Issue
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