Studies on Studies in CQG
One aspect of some popular studies is the study is not normalized. That is, a study may not be range bound. For example, the Relative Strength Index (RSI) can only flash readings between zero and 100. On the other hand, the TradeFlow On Balance Volume (TFOBV) line is a running sum of the trades at the ask price (buying) minus trades at the bid price (selling). Consequently, judging whether the TFOBV line is high or low is not easy because there is no relative scaling available. With CQG, traders can apply a study to a study and normalize the study’s readings.
One study that is appropriate for the task of normalizing a study is applying the Stochastics Oscillator to the study. The Stochastics looks back at a range of values and plots the current reading as a percentage of the high and low of the look back period.
As an example, we will apply the Slow Stochastics oscillator to the Smoothed Aggregated TradeFlow price action and to the TradeFlow On balance Volume line. The study in the second from the bottom widow is the Stochastics Oscillator applied to the price action. The bottom Stochastics Oscillator is applied to the TradeFlow On Balance Volume study (TFOBV).
Reviewing the chart, we can see that when we compare trendline A to trendline B we see that the TFOBV line made a new low while the price did not. In other words, the selling was being absorbed by the market. Sellers could not get control.
Checking the Stochastics Oscillators, the Stochastics Oscillator applied to the price at point C and the Stochastics Oscillator applied to the TFOBV at point D crossed above their respective moving average indicating both the price momentum and the momentum of the volume of buying was turning up. The Smoothed Aggregated TradeFlow bars began trending higher, and the TFOBV climbed.
Moving along, the Stochastics Oscillator applied to the TFOBV was very overbought and turned downwards. The Stochastics Oscillator applied to the price moved down to juet below the 50-percent level (point E) and the Stochastics Oscillator applied to the TFOBV reached oversold levels (point F). The Stochastics Oscillator heading down was indicating selling pressure was rising, but because the Stochastics Oscillator applied to the price was holding up at such a high level indicated the market was absorbing the selling.
Here, we have shown how to use studies on studies. CQG comes with over 90 built-in basic and custom studies. Traders can also build custom studies from elements such as the TradeFlow bid and ask volume. We’ll be looking at some of these ideas in future articles