A new kind of stock-price chart

By Felix Salmon
September 10, 2010
Briargate, an algorithmic prop-trading firm (it's an anagram of "arbitrage") which has more or less given up on trading during the middle of the day.

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I love Kristina Peterson’s profile of Briargate, an algorithmic prop-trading firm (it’s an anagram of “arbitrage”) which has more or less given up on trading during the middle of the day.

High-frequency strategies like Briargate’s work best when there’s maximum liquidity, and that’s definitely during the first and last hour of the trading day. So instead of babysitting their computers at noon, Briargate’s principals go for long walks, or visit their children’s schools, or go out for pizza — and don’t even notice when something like the flash crash happens. (They were at the movies at the time.)

All of which makes me wonder whether we shouldn’t be presenting intraday stock charts a little bit differently. Right now, they invariably construct the x-axis so that every given unit of time (one minute, one hour, whatever) takes up the same amount of horizontal space. Underneath that you sometimes see a volume graph which shows you the important parts of the chart to look at.

Does anybody publish charts where the x-axis has a constant volume chart along the bottom, spreading out high-volume trading periods and skipping over low-volume periods relatively quickly? Is there a way of publishing data so that every tick, or every 1,000 shares traded, takes up an identical amount of space on the x-axis? The axis could still be labeled by hour or minute, it’s just that those labels would no longer be equidistant.

I’m pretty sure that such a chart would provide an interesting and fresh perspective on how stocks move. But of course it would be hard to generate in Excel, so maybe that’s why I’ve never seen one.

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Comments
5 comments so far

Equivolume and Candlevolume charting has been around for a while, but isn’t 100% what you request. Bigger volume periods take up more width on x-axis…SPY link attached:

http://stockcharts.com/h-sc/ui?s=SPY&p=D &b=5&g=0&id=p65612415663

Something about your request is not jibing with me yet – not sure waht you lay out above gives you what you want. Stay Tuned.

CMT683

Posted by Vinsane38 | Report as abusive

yep, you can do all that with a modern charting package (not free…).
the idea of charting time on the x-axis is a modern idea, early futures or stock traders didn’t use time, they used mostly price reversals.

Posted by alea | Report as abusive

Please – I know the Briargate guys. They made a ton as specialists in the 90s (and paid a major fine for their efforts), then another ton when they sold their specialist firm to Van der Moolen. They’re living off that. They’re no more actual traders than the E-Trade baby.

Think about it – only trade at the open and close and they take no risk because they’re fully hedged, yet they’re making seemingly amazing returns – “in line” with what Specialists made Back In The Day. Doesn’t make any sense.

Posted by Yarsan | Report as abusive

I’m pretty sure that graphs on the Reuters Terminal when I first worked for them 15 year ago were closer to volume based than time based. Each trade was plotted as a separate interval on the x-asis and as long as the average trade size remained fairly consistent this would be sort of volume adjusted. The x-axis was marked with labels of the time, which were not equally spaced as a result. This certainly caused time to stretch at open/close and be quieter midday.

Posted by nicfulton | Report as abusive

Hi Felix:

The answer is the “tick” chart. Traders have used this format for years. The data can be plotted in increments of x transactions or x contracts/volume. When the market is “dead”, fewer bars are plotted.

Teresa Lo
InvivoAnalytics.com

Posted by Teresa_Lo | Report as abusive
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