P & F & UK Shares

fastnet

Well-known member
305 1
Thanks for your reply JonnyT -

From your email I understand that if, for example, the price is currently describing an upward column but then, intraday drops once or twice and bounces off the same resistance that is more that 3 boxes away (assuming 3 box rev) BUT the price gave a high for the day slightly higher than the previous day then only the continued movement upwards would be added??

Would this chart not then fail to register the obvious strong resistance at the lower level?

I can see that this way of assembling the charts makes the process much easier but does it not interfere with the principle behind P&F which is to show areas of resistance and equilibrium on a chart independent of time. If a chart is completed with strictly one column per day it can not be independent of time.

As I say I am new to all this. Please understand that I am not being deliberately argumentative but instead just trying to reconcile in my own mind the effect this would have on the reliability of the signals? Have you ever compared the two methods?

I should expect that with large box sizes and relatively nonvolatile markets this problem would not often arise.

Also could you please confirm that, using your method described above, that you add a box in the current direction based on the HIGH point in that direction and not the closing price. Basically an extra box (or more) is added in the current direction even if the low is far enough away to warrant a reversal.

I would appreciate any comment you have on the apparent deviation form the underlying idea behind P&F and the extent of its affect on results/signal reliability.

Thanks again
 

svengali

Junior member
15 0
If you are charting off end-of-day data, then you will only see support/resistance lines that are apparent with market close data.

If you want to see intraday features, you need to use intraday data.

And yes - one data item can only do one of:
a) Extend existing column
b) Start new column in opposing direction.

First see if it can do a. If not, see if it can do b. It cannot do both, nor can it start more than one column. Unless you are using some weird variant of PnF.

-svengali
 

JonnyT

Senior member
2,560 22
Hi fastnet,

<i>From your email I understand that if, for example, the price is currently describing an upward column but then, intraday drops once or twice and bounces off the same resistance that is more that 3 boxes away (assuming 3 box rev) BUT the price gave a high for the day slightly higher than the previous day then only the continued movement upwards would be added??</i>

Correct, that is a rule of PnF charts.

<i>Would this chart not then fail to register the obvious strong resistance at the lower level?</i>

Correct again, the answer is to use intraday data and charts else change the granuality of the chart.

<i>I should expect that with large box sizes and relatively nonvolatile markets this problem would not often arise. </i>

Correct

<i>Also could you please confirm that, using your method described above, that you add a box in the current direction based on the HIGH point in that direction and not the closing price. Basically an extra box (or more) is added in the current direction even if the low is far enough away to warrant a reversal. </i>

Correct, this is a basic rule of PnF charting.

JonnyT
 

fastnet

Well-known member
305 1
Thanks for your clear and concise replies.

I wonder if you could point me in the direction of historic P&F charts that I could use to back-test the reliability of the signals generated.

From what I have read it seems that the most reliable signals are failed double tops with at least 3/4 boxes in opp direction or failed triple tops.

Triple tops with ascending bottoms are also supposed to be reliable.

Any comments? - it's great to have found someone else that uses P&F - I'm not sure it's that popular

Thanks
 

fastnet

Well-known member
305 1
Would anyone be willing to discuss success rates of P&F set-ups on FTSE100 shares using EOD data?

Main issues are the most reliable signals, stop points and filtering techniques - ie only going long on bullish signal when FTSE trend overall is up etc.

Unless someone can inform me otherwise it looks as though there isn't a free source of P&F charts for UK shares which is going to make backtesting signals pretty time consuming since I'll have to draw the charts as well!!!

Does anyone trade large cap shares usiing P&F? I can only see threads about there use with intraday FTSE/S&P trades.

As always I'd be grateful for any help -

Thanks
 

DaveJB

Experienced member
1,159 42
Hi,
gosh - this has been busy while I've been at work! The description of chart construction - 'extend in current direction as first choice, only check for reversal if the existing column doesn't extend by one or more boxes' - is correct for H/L charts. You are charting one bar at a time, so to speak, ie one set of O, H, L and C info for a chosen period... to see what happens over the course of a day you want intraday data and to chart based on the OHLC of each X minute period... pick your own X to suit how 'granular' (good word, well picked <g>) you want it to be. The docs with Pfscan explain the chart construction method. Again this'll look like an advert, but Pfscan includes a signal tester, that is still being developed further, to see how signals work out in practise... the current V2.79 'trades' all signals, the update I'm working on adds a few things to this and being able to select the signals to trade is - I hope - soon going to be up and running in there too.
To find 'failed' triple tops, for example, you'd run the tester and open the CSV file it generates (there are commentary logs output as well, outlining where 'decisions' are taken) and sort alphabetically to get the Triple tops - you'd then check the returns generated by your chosen exit tactic (short list of things like stops and retracements, V2.80 has ATR based exits, not in 2.79) and a 'good' failure would be tested to see that the T.Top had peaked at/near the signal level, then dropped a 'good' percentage say.
I trade large caps with P&F - darned infrequently over the past year due Pfscan etc admittedly - but my preferred spectrum of stocks is basically the FT350 (preference for the 100, but I will take a 250 share that looks good) and a group I made up from the US market that is mainly the top two or three stocks by mkt cap in each of around 50-60 sectors. Most of what I trade is longer term, held beyond a year sometimes, or as little as a week if the signal plays out quickly, and probably in the top 150 or so of the UK or US market by cap.
Dave
 

nautical

Junior member
19 0
Hope you don't mind me chiming in here guys but I wanted to clarify one of Jonny's replies.

Fastnet wrote:

From your email I understand that if, for example, the price is currently describing an upward column but then, intraday drops once or twice and bounces off the same resistance that is more that 3 boxes away (assuming 3 box rev) BUT the price gave a high for the day slightly higher than the previous day then only the continued movement upwards would be added??

Jonny replied:
Correct, that is a rule of PnF charts

Jonny - in the example above (using Fastnet's proposed EOD system) are you saying that you'd actually plot the day's high and not the closing price (which itself may not actually extend the plot upward)? I always thought that it's the level of the closing price (not the intraday high) that determines whether you continue to plot upwards or instead start to plot a column in the opposite direction. Is this not the case? Happy to be corrected of course and have much enjoyed reading your automated PnF exploits on one of the other TTW boards...good luck with it!

Thanks in advance.
Chris
 

JonnyT

Senior member
2,560 22
Hi Chris,

Proper PnF uses the days high and low prices and not the close price.

JonnyT
 

DaveJB

Experienced member
1,159 42
Seconded - you'll see (normally) P&F H/L charts, but some people plot close based ones instead. For the H/L you ONLY use the day's high and low prices. Take share A today, yesterday it ended in an X column say, today you check the High therefore, if the high is a box or more above the column top as it stood yesterday then you extend the chart by however many boxes and totally ignore the low, end of story. IF the high doesn't add 1 or more boxes to yesterday's last column, then (and only then) do you look at the low - if that price is low enough to cause a reversal (the amount being equal to box size x reversal count, so on a 2% log chart, 3 box reversal that'd be 2% x 3 = a low that is 6% below the X column top showing from yesterday) you stop charting the X column and draw an O column down from the box below the previous top... ie the O column heads south, and has a 1 box step down at the top compared to the X column it has taken over from.
If share B was dropping yesterday, and in an O column, then you check today's LOW first. If that low drives the O column a box or more lower then that's what you do, you then totally ignore the high price. If it doesn't set a new low you check to see if the High is high enough to create a reversal - if it is then start an X column up, if not then do nothing.
So it's ALWAYS (1) Extend current column if possible, (2) ONLY if you can't do (1) should you look for a reversal. If big enough swing occurs then start a new column.
The idea is more sensible than it sounds - if a share is climbing, and sets a new high, then we're weighting the chart in favour of the continuing upward pressure... if the peak was early in the day and a fall is starting then it'll become apparent in tomorrow's chart when there's no new high and the fall continues.
Dave
 

fastnet

Well-known member
305 1
Thanks DJB for putting that one to rest!!

I am v new to P&F and, at this early stage at least, find them very exciting. As Marc Rivalland comments in his book P&F charts are designed to cut through the random noise and clearly show the balance of power between bulls and bears.

However, I do have reservations. I am sure that P&F charts if properly drawn give excellent and fairly reliable signals but I am concerned that updating every night for the following day will merely show you the excellent signals that you have missed!!

I am confused about the different methods used in drawing the charts. The method described above seems to be a modification to the underlying philosophy behind P&F which allows you to update day by day. However, as mentioned above, this introduces a time factor into the charts. The main idea behind P&F is that they are independent of time and are instead a graphical representation of price action whenever it occurs. To omit what might well be significant action just because it took place intraday would undoubtedly lead to a different charts and hence signals being created.

I wondered if anyone had looked into the extent of the effect of this modification on the results obtained?

Thanks for your patience - especially DJB!!

Fraser
 

svengali

Junior member
15 0
To omit what might well be significant action just because it took place intraday would undoubtedly lead to a different charts and hence signals being created.
The same thing happens when you consider a 1 minute chart compared to a 15 minute chart etc. Yes - you will miss intraday events by only using end-of-day data. But you will catch events that occur over longer timescales instead.

It is said that Technical Analysis is scale-invariant. That is to say, it works on all timescales. So if you use end-of-day data, you will still find TA signals, but it will take longer for them to form.

Even on a 1 minute chart, you are missing some of the action. Read the posts about Level 2 and you will realise that by the time a price is on the chart, the opportunity that existed at L2 is gone!

Hope this helps,

-svengali
 

fastnet

Well-known member
305 1
Hi Svengali -

I am afraid it looks like we might have to agree to disagree on this one.

With all other charting forms I am familiar with your latest comment would indeed be true and I agree with you entirely.

However the main difference with P&F is that (in theory at least) many days or even weeks can pass by without any new columns being added. If the price traded within a tight range that was inside the reversal point (eg 3box) but also never exceeded previous highs then nothing would be added to the chart.

The only thing that moves the chart along the x-axis is price movement of significance as defined by you. If your boxes are large (2.5-3%) then there will be less action to update.

Time does not come into it. This is why it is artificial to update using just the High/Low of the day just gone.

I thought for a long time that P&F was simply another way to graphically describe price action with time. I thought that one column was added per day. The only benefit, I believed, was that the random noise was screened out and levels of support and resistance were easy to spot.

P&F should record any significant (as defined by your chart) price action whether it happens intraday or over a number of days. The point is that days are a measurement of time and time is not relevant with P&F.

The method described above by DJB is a modification to P&F theory to simplify the P&F chart construction process.

My question is whether this modification makes an appreciable difference to the results. If it does not then I will happily use this method and stop mithering about the minutia of P&F chart construction !!! ;)

Cheers

Fraser
 

nautical

Junior member
19 0
Hi Fastnet,

I think the issue you raise is addressed by Dave's last post.
If I'm correct then your concern is that using an EOD system will mean that you miss signals generated by the intraday activity. While this is probably true, as I see it we are always going to miss signals generated within timescales shorter than the one we choose to work with. Hence Jonny's point about granularity of charts and Sven's point about missing signals generated within a 1 minute timeframe when you are only looking at 15 minute charts.

Dave's point about using the day's H or L for your PnF plot ensures that you are at least reflecting the day's strongest sentiment, whether in the long or short direction. So while operating within the constraints of an EOD system, you could still be generating signals from the most significant of any intraday H/L movements.

Remember, trends don't just exist in the minute-to-minute timeframes...they also exist (and will likely cover a greater range) in daily, weekly, monthly and even yearly timescales. Your challenge therefore is to determine which timeframe you want to work with. If you can stay glued to your screen then minute-to-minute timeframes will certainly throw up (shorter term) signals that you would otherwise miss. However, as a newcomer like myself to the PnF arena I would suggest working with timesframes that give you an opportunity to think, analyse and respond appropriately.

Time does come into it even if the chart doesn't show this directly e.g. daytraders using PnF (jonnyt) obviously need to use price points across a much shorter timescale (every 5 mins) if they are to identify signals, though these don't necessarily make it to the PnF chart. So while they may use 96 x 5 minute prices to determine how their chart looks during the day, you are going to use just one H/L price to create yours.

Hope this helps....feel free to question anything I've said.

Chris
 
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