Stocks & Commodities V. 23:6 (46-50): Visualize Price Movement by François Bertrand

Stocks & Commodities V. 23:6 (46-50): Visualize Price Movement by François Bertrand

Detecting the strength and direction of investor sentiment at an early stage is critical for successful trading. Here’s an inventive, profit-generating type of charting that provides unparalleled insight into volume.

Detecting the strength and direction of investor sentiment toward a stock at an early stage is critical for successful trading. Volume, the number of shares traded for a stock on a given day, has long been recognized as a premier indicator of investor emotion and is used daily by traders under one form or another. Price activity (PAC) charts are a potent yet highly intuitive method of charting. Their innovative layout of data offers analysts unparalleled visual insight on volume with respect to both price and time. These charts are simple in concept and potent at detecting breakouts, the strength and location of actual resistance/support levels, and by their very nature, leverage well-known formations such as pennants, triangles, flags, and consolidation areas (Figure 1).

CONCEPT AND BENEFITS

Like many well-established indicators, PAC charts aim at measuring investor emotion levels (through volume measurement) for a given stock. However, PAC charts track volume independently at each price point, not just total volume for the entire stock. In addition, this information is compounded and weighed over time. While this approach is similar in some ways to “price by volume” histograms, the tracking and compounding of data per price point, per day, effectively increases the amount of information provided by PAC charts by an order of magnitude. In effect, the per pricepoint information reveals exactly at which prices, which point in time, and what quantities that investors have been trading. This data offers real benefits to investors.