In the “Getting Started” section, we looked at creating a “standard” chart, just the regular price and volume, and with adding a few “traditional” indicators to the chart. In this section we will begin to examine the TFI Indicators, what they mean and how they work.
Let us begin with a comparison of the “standard” chart to one that shows the same period with the TFI Indicators.
On the “Traditional Chart” a red candle just means that the price closed below the open, and a green candle means the price closed above the open. There is no other significance to the colors. The blue line is a 20 day moving average. In early April the price touched that moving average and then started a new move up.
On the chart with the TFI Indicators we have a lot more information. There are more “warnings” that we had before the price started to move up, and many warnings as the price is in the 180-187.50 area that this upward move is likely to end. As we examine the different components that make up the TimeFrameInvestor Indicators we will see how much more information is presented on this chart, and also how to use this along with other time frames to get a clearer picture of what to expect.
When I refer to the color of a candle, I am speaking about the color of the “body”. The charting “tool” only creates a solid body, and when the TFI color scheme is applied, the entire body is colored based on the result of the strength or weakness. To determine if the candle closed above the open, the outside of the body will have a green border. If the price closed below the open, the outside border will be red.
When a candle is “green” it is showing that there is buying pressure “under the hood” and that there is a strong potential for the price to move higher. I also refer to a green candle as “strength”.
These are “blue” candles, the first with the green border where the price closed above the open, and the second with the red border where the price closed below the open.
A “blue” candle is showing some buying pressure, but there is not a lot of strength associated with it, so it only represents a “weak” upward potential.
The “yellow” candles also have the same borders. The “yellow” candle shows some selling pressure, but the selling pressure is not over powering, so there is a “weak” downward potential.
The “red” candles also have the same borders. The “red” candle shows that there is significant selling pressure, and there is a strong potential for the price to move lower. I also refer to this as “weakness” in the price.
Between the price and volume is a “bar” that I refer to as the “trend”. There are 3 colors used in it. Green to represent strength/uptrend, black for neutral, and red for weakness/downtrend.
The charting tool puts a border around the green and red trend marks. This border is meaningless and should be ignored.
The up and down arrows do not represent a “buy” or “sell” signal. What they show is that the “internals” are changing to present either a strong potential for an upward or downward move to develop.
The dashed line that runs thru the chart is the “oscillator”. By itself it does not generate a “buy” or “sell” signal. This is a “momentum” type indicator, it shows the momentum of the price, and when it crosses thru the price it is showing that the price is falling behind the momentum that generated the move.
The oscillator can even be used to help in timing issues to show if a move is immanent or if a few candles are likely to appear before a move will develop.
There is a lot of information that is shown with the TimeFrameInvestor indicators. Buying/Selling pressure, trend, momentum, internals, along with indications for momentum and overbought/oversold conditions.
There are many ways to trade, and many time frames that can be used. Ranging from a very short term directional “day trade” to a long term “non directional” option trade. It is when we let the indicators “paint a picture” or “tell a story”, and we look at the relationship of multiple time frames that we can put the odds in our favor. Instead of taking a “scatter gun” approach where we shoot at anything that moves, we can instead sit back and find the opportunities that present the best potential to make each shot count.
In the next installment we will start to look at different specific situations and how to read the story that is being told by the indicators.