Our eyes and mind work together to pick out patterns in what might be considered chaos. We see relationships in dynamic, non-linear sets of information. This is the basis of chart reading. Transforming the standard price chart into a point and figure or line break or candlestick chart allows us derive extra information. Overlaying or appending indicators is another method to help identify useful trading ideas. Indicators can highlight the interactions between price and volume, or lets us compare price change in different time periods. Colour adds dimension. It provides extra visual clues guiding us in on important details. All of the techniques can be combined into a single, standardized presentation format, sometimes called a template. Continuous use of your template leads to familiarity improving the likeliness of identifying patterns.
When developing a template, care must be given to ensure the optimum amount of information is presented. Organization is critical. Too cluttered and an important observation may be missed. Balance is the key to success. Match the layout to the desired goals. Avoid adding highly correlated indicators. When showing the same indicator with different periods, overlay them, don’t separate into individual plots. Limit the number of colours. If layering, put the more important indicators on top. Try removing the price and volume plots completely. Refine and redevelop until you are comfortable with the results.
From a well thought out template, trading rules
can be developed. For the programmers, the next step may be to
develop the rules into a trading system. Here are some though
provoking samples to get you in the mood:
