Thursday, November 29, 2012

Yet more on volume!

Made another workaround on the Volume indicator. This version allows 2 data streams to be specified, well 3 if you count the normal stream. For example, in the following chart I had daily bars, and then 2 additional streams 20 days back using 5min bars, and a few days back using raw tick data.

Using raw tick data seems to overcome the problem with the last day's data being too high. So, far it seems to look better. But only time will tell.

In the below chart, the top volume histogram is the new 'Volume2'; the middle one is the regular tick volume, and the lower one is 'Volume1' which reconstructs using just 1 other data stream.


All this, just to overcome errors in FXCM volume data! It would be better if they could fix this at source. Maybe if enough people ask them they will fix the problem!

Market Profile and Composite Profile

Just to remind people that I updated Market Profile and Composite Profile to Release 6 a few weeks back. I didn't send this automatically because, well a) the changes were not major, and b) I didn't want to bother people with more updates, and c) I figured people would ask if they wanted it. If you already have a license for these indicators, and want the updated version, please just drop me a mail, and I will send the updated version.

Composite Profile (Release 6)
  • Added 2 new modes: “N bars back” and “Manual” mode

Market Profile (Release 6)
  • Added support of VWAP bands with +/- standard deviation levels
  • Added variable-time profile mode
  • Added “coloured TPO” colouring effect
  • Ability to disable the “tool tip text”
  • Ability to set the font size for TPO charts
  • Addition of profile labels
For anyone else interesting in these indicators, they can be purchased on my blog. You can also request a free trial.

Sunday, November 25, 2012

BETTER_VOLUME indicator

I've produced a modified version of the BetterVolume indicator. This version uses lower timeframe data to reconstruct the volume bars, thus overcoming many of the issues present with FXCM tick data. The current day's tick data still seems to be higher than normal, but the other problems of anomalies and high values in the current week seem to be better handled.

The logic for Better Volume remains unchanged - I am not the inventor of this logic and take no credit for it. Details of the original indicator can be found here. My work only extends to fixing / providing workarounds for FXCM tick volume data for this MarketScope indicator and other issues . However, I'm actually working on something similar though, utilizing VSA techniques.

Here's a chart showing the normal BETVOL indicator and my new BETTER_VOLUME version. You can see the large anomaly "climactic churn bar" is no longer there.


This indicator is now posted to FXCodeBase. You can find it here.

Friday, November 23, 2012

Using Futures Volume for Forex

Although I've made significant progress with workarounds for tick volume problems for daily charts from FXCM, I'm still not quite there. One alternative that I was looking into was the use of volume from the future's market.

There is the COT report which comes out on the Friday. There is an indicator for MarketScope on the FXCodeBase site.

CME also have data for futures and options on their site, including 10-min delayed data in the form of charts, and even showing depth of market. Some quite interesting stuff there. For example, for the Euro FX futures contract.

I can't embed the chart link here currently, but here's a screenshot of the daily chart for the December Euro Fx contract, with volume (you can select charts from the above link).


For comparison, here's the spot forex (with tick volume) of similar period. (NOTE: the futures chart is for December contract, which is why volume doesn't exist before September, and of course people are still trading the previous contract then as well, so volume takes some time to ramp up).


Using real daily volume will be useful to compare against the accuracy of tick volume, or for better trading decisions.

Wednesday, November 21, 2012

More on volume

I have continued my study into tick volume data from the FXCM data feed which MarketScope uses.

I concluded (or at least deduced) the following:
  • Using the regular tick volume on daily bar data can have large anomalies (e.g. much larger than average volumes for fairly average bars).
  • The volumes for all bars in the current week seem to have higher than average volume (i.e. higher than the previous week's volumes).
  • After the Friday close, FXCM seems to do some "cleaning" of the tick volume data. This means that when the chart is re-opened, e.g. on Saturday or Sunday, the large volumes and some of the anomalies seem to have been removed - at least sometimes.
  • Intraday data, in general seems to be better. However, as mentioned already the current week's data still seems to be higher than normal.
I wrote a couple of volume indicators: Volume and Volume2. The indicators just shows the tick volume as a histogram, along with simple average and upper/lower bands. The bands can be standard deviation or a simple fraction/multiple of average volume. The histogram bars are coloured according to whether the volume is above or below these upper/lower bands. This indicator is designed for use in volume studies, such as Volume Spread Analysis.

However, the difference between the 2 indicators is that Volume uses the regular tick volume, whereas Volume2 reconstructs the data from intraday data. In the latter case, the period of the intraday data can be chosen, e.g. to be H1, m5, m1 etc. even tick. However, using the lower timeframe data has a speed penalty, since it takes longer to load the data. To overcome this, the indicator allows you to specify how many bars of data to initially load in this manner.

The following chart shows the 2 indicators in action...


At the bottom are the Volume and Volume2 indicators. The top one is Volume (using the regular daily tick data). You can see the anomalous (very big) bar from last week, and that this week's bars are all higher than normal. The middle one is Volume2 (using 1 hour data to reconstruct the volume). The big anomaly bar from last week is now gone, but the current week's volumes seems a lot higher than normal. Finnaly, at the bottom, is Volume2 again (this time using 1 minute data to reconstruct the volume).  Here, at last, the data seems "normal". There is still a big bar in this week's data (yesterday's bar in fact) - but I actually think this is a genuine big volume bar - it was a "churn bar" (long tail, mark-down on news followed by professional buying).

In both the above uses of Volume2, the indicator reconstructed the volume only for the last 20 bars (20 days); for older bars it used the regular volume data. This is just a trade-off of loading speed vs accuracy. The value of the "last N bars" is an input parameter.

This indicator is now posted on FXCodeBase. You can find it here.

Thursday, November 15, 2012

VSA on EUR/USD

I've started looking at VSA (Volume Spread Analysis) again. I had performed some studies on this topic last year. Actually, I was working with artificial neural networks at the time, but did not make much progress (it is a big topic).

Anyway, for various reasons, I took another look at it. Here's a daily chart. I'm also using my Candle Profile Indicator, which is essentially computing Market Profile of each daily candle, but in the mode I used here it only shows the POC (black 'blob') and the Value Area (black vertical line). Just like a regular Market Profile, POCs and NPOCs in particular are often good support / resistance levels, and price nearly always reacts at them. Furthermore, I am noticing the fractal nature of the market, and at many time frames when a POC is in the middle of a long tail, and price closes above it, it means buying (accumulation), and following bar will very often close higher. This is clearly seen in the chart.

I think the combination of VSA techniques, and Market Profile has the makings of a potent combination.

Installer files for indicators

I've now created "installer" executable files for all the indicators on my site. This will make it a little easier to install when there are multiple files involved. You can still manually install the indicators if you want.

I'm using the Nullsoft Scriptable Install System, as recommended on FXCodeBase. I actually tried this before, but had problems with gmail blocking the "exe" files.

Wednesday, November 14, 2012

Currency Strength Meter

Still one of my most popular indicators is the Currency Strength Meter. It was the first indicator that I converted for MarketScope. The indicator computes a mathematical value known as the "geometric mean" of several currency pairs, in order to create an "index" for the currency (similar to USDX or USDOLLAR). It does this for USD, GBP, EUR, CHF, JPY, AUD and CAD.


You can also use the output as an input to another indicator, e.g. MACD or RSI, as shown below, which calculates the RSI for JPY.

Footprint meets Composite

If you look back at one of my earlier posts on the Footprint, it has the option of a composite / line style. In later development I took this out, since it didn't seem to give particular good results - mainly because after several cycles of buying and selling, the "delta" at a particular price level doesn't really have much meaning any more.

But I've made some improvements since then, both to the Footprint indicator and to the Composite indicator. Here's my latest attempt to combine the too. It is still under development - this is just a teaser for one of my readers ;-)


I'm still not sure how useful this composite style Footprint will be, it needs further study.

Saturday, November 10, 2012

MarketScope volume on daily charts

I've heard about issues with FXCM tick volume data before. There's several threads about it on DailyFx and FXCodeBase. To date, my use of volume has been mainly on intra-day, (e.g. 4H, 1H, 15min), and I hadn't seen much evidence of any problems.

However, I've been using Daily charts of late, and here I did notice a problem. The following chart was taken on Friday, as the market was closing. The whole of the current week is showing much higher than average volume. It looks a little off - the week was not particularly extraordinary. A further point is that there was a zero-volume bar for Sunday (which is Asia Monday morning, and so its only a partial bar).


I'd heard of problems with tick volume data changing over the weekend, and so I opened the chart again on Saturday (market closed of course, but you can usually still open the chart unless FXCM are doing maintenance). The zero-volume Sunday bar had disappeared. More importantly, the volume bars of the previous 5 days looked a lot different. The daily bars older than the last week seemed to be identical or very similar. For some reason the Thursday bar showed huge volume, which seemed quite odd as it was a small range bar. Wednesday was larger range 'churn' bar, and I would have expected that to have the highest volume of the week.

Here's the chart, you can see the regular "tick volume" which MarketScope shows, and also just beneath it an indicator that I am developing at the moment. My indicator is showing the mean and standard deviation lines, but other than that the volume values are the same (I just wanted to show this to prove that the issue is not in my indicator, but in the actual daily tick volume data).


Next, I opened an 8 hour chart of the same pair. If you count up the days' volumes by hand (i.e. 3 x 8 hour bars to make a day's volume), the figures seem much more reasonable. The following chart shows the 8 hour bars, grouped in 3's for the last week. Adding up the tick volume for these 8 hour bars should give the 'correct' daily volumes. The values look more like normal volume values. Here, Wednesday now has the highest volume of the week, and Thursday's volume has returned to a more normal level.


What does this mean? Well, it seems to confirm that there is a problem with the daily tick volume data. However, the intra-day data seems to be more reliable. I didn't check weekly, monthly candles (I never use those). I also need to check again when the market reopens on Sunday night, and see if there are any other differences.

I modified my volume indicator, so that it uses a separate, lower timeframe (e.g. 8H or 1H, etc.) version of the same instrument. The indicator then computes the daily tick volume from these lower time frame bars, much as I had done manually. This seems to get around the issue with the daily tick volume data. The following chart shows the new indicator in action with 1H and 15min bars, as well as the original indicator as shown previously. The week just past looks a lot more reasonable now.


Implications for other indicators? I would be very suspicious of all MarketScope indicators based on tick volume when using them on daily charts. When used on intra-day timeframes, they should behave more reasonably.

I'll be making sure that any volume indicators that I write will use this technique.

Market Profile and Composite Profile Release 6 Available

Release 6 of the Market Profile and Composite Indicators are now available. Most of the changes have already been blogged about on these pages.

They are relatively minor changes, and mostly are suggestions from users.

Market Profile: Release 6


Composite Profile: Release 6


If you already have the indicators and would like the new version, please drop me an email, and I'll post you the updated files. If you are looking to purchase these indicators, then please visit my products page, or request a free trial.

Thursday, November 8, 2012

2 new modes for Composite Profile

I added 2 new modes for Composite Profile. It has 3 modes now:
  1. "Normal" mode will generate the profile of the whole chart, or between the start and end dates specified in the input parameters.
  2. "N bars back" mode will generate the profile for the last N bars.
  3. "Manual" mode allows the user to specify the start and end dates manually by clicking on the chart (using context menu on right mouse button)
I've also added an option to draw a box around the bars which make up the profile, this is mainly for debugging or checking that the profile covers the required date range.


These changes still need a couple of tweaks, but should be ready very soon.

Wednesday, November 7, 2012

POC's revisited

Naked Points of Control (NPOCs) are Points of Control (POC) which have not been touched by ensuing sessions. When price eventually does revisit them, they often act as support / resistance levels.

The following chart of the EUR/USD is using the Candle Profile indicator to create and display micro-composite profiles of 30min bars. The big down bar in the chart has a POC highlighted. Without the aid of the Candle Profile it would be difficult (if not impossible) to pick out this level from plain 30 min chart; it's not a top, not a bottom, there appears to be nothing significant about it at all. But look at what happens when the price eventually reaches this level again nearly 2 days later!


The Footprint indicator shows how that price level acts as resistance. The price makes an attempt to go higher by a few pips, and eventually falls back below it.

Monday, November 5, 2012

Weekend gap on EUR/USD, closes then drops

Interesting chart on EUR/USD. Gap down, which then retraces to a previous POC acting as resistance. Asia session afternoon reversal (often happens). Weak employment data from Spain, and price goes down. Retrace also back to previous POC level. All, on the Footprint. I didn't trade the gap, since it was only quite small, I tried to get in on the retrace, but my entry order just missed being filled by a pip.

I'm using the "bar" mode on the Footprint rather than the numbers, since it is easier to see when zoomed out like this.

Friday, November 2, 2012

Market Profile Release 6 Available

I've blogged about several changes to Market Profile indicator over the last couple of weeks. I've now rolled these up into a formal release of the Market Profile indicator (including the changes to the documentation).

The indicator is now Release 6. The changes are:

  • Added support of VWAP bands with +/- standard deviation levels
  • Addition of profile labels
  • Added variable-time profile mode
  • Added “coloured TPO” colouring effect
  • Ability to disable the “tool tip text”
  • Ability to set the font size for TPO charts
I'm finding the "coloured TPO" a very useful addition. I use Daily profile, and this shows the sessions as different coloured TPOs on the chart. Unfortunately, this mode is a little more graphic intensive, so I also reduce the number of historic profiles in order to reduce any impact of lag in MarketScope.

I've also got some changes to Composite Profile in development, so I won't send this latest Market Profile update out yet. However, if you want it, just drop me a mail.