technican analysis course material at CQG

7/29/2019 technican analysis course material at CQG

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Types of charts

Bar charts

Candlestick charts

Constant volume charts Line charts

Tflow charts, exclusively CQG


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BarCharts

Vertical line representing the high and low of the sessions

Horizontal line on the left of vertical is the opening

Horizontal line on the right of the vertical is the close.

Timeframe can be anything from 1 minute to annual,including intraday, daily, weekly, monthly, quarterly,

semiannual, and annual.


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Candlestick Charts

The candlestick chart like the bar chart includes the high,low, open and close.

The Japanese put great interest in the opening and the

closing. The candlestick charts have a colored body which

represents the open and close. In CQG the body of thecandlestick is colored green if the close is higher than theopen (trades up). The body of the candlestick is colored

red if the open is higher than the close (trades down) The shadow or the black vertical line represents and

trading activity which is higher than the open or close whichis higher or any trading activity which is lower than theopen or close which ever is lower.


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Timeframes

The timeframe used for forming a chart depends on the

compression of the data:

Intraday, daily, weekly, monthly, quarterly or annual data.

The less compressed the data is, the more detail is displayed.

Different time horizons represent different trend lengths.

Many traders look at multiple timeframes.

Traders trend to look at three time frames: trend, trade and trade

entry. i.e. monthly (trend), weekly (trade), and daily (entry).

Short term traders may look at weekly, daily, and intraday

timeframes.


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Advantages of multiple timeframes

Identify divergences in timeframes

Trade when all three timeframes are in sync.

Confirm trade systems in multiple timeframes. Better timing of trades.

Better monitoring of trades in longer systems.

Protecting your position from trades in higher timeframes.

Better profit objectives from the longer timeframes.


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Constant Volume Bars

Constant volume bars, CVB, look like bar charts but each

bar represents the same number of contract or ticks rather

than a set timeframe.

A 500 contract CVB chart, each bar represents 500contract no matter how long it takes to trade 500 contracts.

It is time independent. Overnight a bar may represents an

hour or more to trade 500 contracts. During the day the

same 500 contracts could trade in seconds. The advantage to CVB is the void of distortions in the

quantitative indicators as a result of inactivity, common at

night.


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Line Charts

Line charts simply connect the close of each bar, ignoring

any intra bar activity.

Most spreads, CLE-QO (NYMEX CRUDE ICE BRENT

CRUDE) , are displayed as a line.

Many market participants believe the close is the single

most important price.


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TFlow Charts

The birth of the TFlow chart are a result of both technology

and accurate volume data including whether the buyer or

seller was the aggressor as well as observing the behavior

of traders on the trading floor prior to electronic trading.

Each bar is colored part red and part green. The red

portion represents trades in which the seller hit the bid,

accepted a lower price to enter the trade. The green portion

represents trades in which the buyer lifts the offer, accepts

a higher price to enter the trades. Volume is the most sensitive indicator and tflow indicates

whether the buyer or the seller is the aggressor, adding

context to the volume data.


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TFlow Chart 2

There are two ways to calculate the TFlow charts. First, the traditional TFlow charts are constructed based on

the inside market, best bid and best offer. A trade above the

offer or below the bid triggers the creation of a new bar.

TFlow charts are new and exclusive to CQG and representsa new view of volume as it changes during the trading day.

Second, the TFlow chart was adopted to fit time based

charting. For example, a five minute TFlow chart would be a

five minute chart except the coloring would represent theproportion of traders lifting offers or hitting bids.

Time Based TFlow provides the added information of TFlow

charts but continues the comfort most traders have with

traditional time charts.


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Continuation Charts

In the futures market we are faced with contracts which

expire, therefore techniques are necessary to link the

active front month contracts with expired contracts for long

term analysis.

1. Standard continuation: the chart continuation rolls to next

front contract as soon as the prior contract expires. The

weakness to this continuation process is the presence of a

delivery period where the holder of a long contract can be

issued a delivery notice. This is acceptable to a hedger, buta problem for a speculator.

2. Adjusted continuation: the user selects the number of

trading days prior to expiration to roll the next contract.


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Continuation Chart 2

3. Active Continuation: the futures contract rolls to the next

contract based on volume and open interest. This

methodology assures the speculator that they are not in the

contract when it goes first noticed and can be asked to

deliver on the contract. This is the most popular

methodology for our users. Adjusted and active continuations also have an option for

equalized closes. This is adjust all prior data to reflect the

basis difference between the two closes when the rollover to

a new contract occurs. This methodology is appropriate forinterest rate based futures or a trade system is being back

tested. This methodology is questionable for deliverable

commodity contracts which has identifiable seasonality.

The equalized closes would mask the seasonality.


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Support and Resistance Levels

Support levels are price levels where buying has entered

the market prior or is expected to enter the market

currently.

Resistance levels are price levels where selling has

entered the market prior or is expected to enter the market

currently.

Support and resistance levels are identified by horizontal

line from recent highs and lows or trendlines which connect

highs and lows.

Buy support when penetrated becomes resistance.

Sell resistance when penetrated becomes support.


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Support and Resistance 2

All our markets are auction markets

Auction markets move higher to find sellers.

Auction markets move lower to find buyers


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Support and Resistance 3

Trendlines

Up trendline is a straight line drawn upward connecting

successive swing or reaction lows.

Down trendline is a straight line drawn downwardconnecting successive swing or reaction highs.

Two points are needed to draw a trendline and a third point

is necessary to confirm the validity of a trendline.

The longer a support or resistance hold the stronger, moreimportant the level.

Volume is a sign of the strength of the support or

resistance levels.


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Retracements

Another indication of the strength of a trend is retracements

from highs and lows.

Markets do not trade in one direction, they take breathers

and retrace.

Dow retracement levels are 33%; 50%; 66%

Fibonacci retracement levels are 38.2%;50%;61.8%

Strong trends retrace 33-38.2% Weak trends retrace 66-68.1%


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technican analysis course material at CQG

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