RULE-BASED TREND LINES IMPROVE DISCIPLINE.

Tradesignal offers a feature to combine different chart types like point & figure and candlesticks into one analysis. This Trading Tips issue explains why it makes sense to combine point & figure trend lines and candlestick charts.

Ask two analysts where to lay a current trend line and you will get three different answers. This is not as flippant as it sounds as trend lines by their nature are very ambiguous and really rely on ‘personal preference’.  That’s because, or is a function of, the fact that there is no commonly recognised method on how to draw trend lines on bar and candlestick charts. These chart types are though, by far, the most common for viewing data.

With point & figure charts things are quite different. Point & figure charts define exactly on which highs and lows a trend line has to be placed. And this algorithm is built in to Tradesignal. You have got two indicators: ‘P&F Trendlines’ and ‘P&F Support & Resistance’.

FIG. 1: POINT & FIGURE CHART WITH AUTOMATIC TRENDLINES AS WELL AS SUPPORT AND RESISTANCE LINES. TRADESIGNAL OFFERS THESE LINES AS INDICATORS.

To get the trend lines on your candlestick chart you have to do the following steps:

• 01. Open up a point & figure chart.
• 02. Apply the P&F Trendline and the P&F Support & Resistance indicators (see Fig. 1).
• 03. Add the same instrument again to the already existing point & figure charts using ‘add instrument’ from the drop-down menu. This chart should be a candlestick chart.
• 04. Drag and drop the ‘P&F Trendlines’ and the ‘P&F Support & Resistance’ lines from the upper chart down to the candlestick chart so that your chart looks like in figure 2.

FIG. 2: THE CANDLESTICK CHART IN THE LOWER PANE CONSISTS OF THE TREND LINES AND SUPPORT / RESISTANCE LINES OF THE (UPPER) POINT & FIGURE CHART. THESE HAD BEEN DRAGGED AND DROPPED FROM THE UPPER TO THE LOWER CHART.

Important step. Finally you have to drag-and-drop both lines from the left axis onto the right axis to ensure that the lines share the same axis as the instrument.

I now have a chart set up that will give me tried and tested areas of support, resistance and trend. Based on the rules of point & figure charting, rather than some arbitrary lines I may draw.

Double click an area in your new Candlestick chart (lower pane of the chart) to expand this part of the chart (see figure 3).

FIG. 3: EXPANDED CANDLESTICK CHART CONTAINING EXACT (POINT & FIGURE-BASED) TRENDLINES.

It’s now fast and accurate analysis every time I open my workspace.