The new type of stock chart
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A couple of weeks ago, I wondered whether it was possible to see what a stock graph would look like if it split up the x-axis according to volume rather than according to the time of day. After all, when trading is concentrated at the beginning and end of the day, those are the areas worth concentrating on, right?
Wonderfully, Omer Uzun of Proteus Financial rose to the challenge. And here’s the result:
The chart splits the 390-minute trading day between 9:30am and 4:00pm into ten chunks. On the normal stock-market chart, seen in blue, each chunk is 40 minutes long. But on the volume-based chart, in red, the first 10% of trading is already over after 17 minutes, while at lunchtime it takes over an hour to see 10% of the daily volume change hands.
I’ve only seen one of these charts so far, but at first glance it does seem as though the volume-based chart seems less volatile — smoother, somehow — than the time-based chart. I wonder what the equivalent chart for May 6 would look like.
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It does seem “smoother”, however I would guess the reason for this is the difference in plotting styles. When you plot with hi/low bars you get a “thick line” result that tends to hide smaller bumps.
You can’t make this sort of graph until the day is over. Before that you won’t know what percentage of the day each hour of trading produces.
RussAbbott is right – the process only lends itself to ex ante analysis. It is such an interesting diagram, thank you for sharing Felix.
Re smoothness, the interesting question to me is whether when time is measured in trade volume, volatility appears more stationary. Sorry, I should know the answer to this but I don’t! I’ll look into it if I get the time.
Giving I had a moment wrapping my head around it, you could make it more interesting and clear by then warping the scale of one into the other. Like bending the vertical lines so the time lines on the bottom shift to their counterparts’ exact time above. That would clearly illustrate the compression factor (multiple activity bars into time slots when active, fewer when not), without having to go thru and count minutes between % bars on the bottom. Probably a bit more complex then a normal graph, however.
==Bob D.
I invented volume bar charting 7 years ago. Having researched them and published a few articles on them I can honestly say they are far superior to time based bars because they do not contain any inherent variable aspect like typical charts contains. The markets are traded in volume, NOT TIME. The problem with getting the industry to look at this chart type is that a majority of “market professionals” are closed minded. Thanks for opening the door a bit.
Wm Schamp