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Prosticks Articles
Hong Kong Economic Journal --- 10 July, 2000
How ProSticks reflect underlying Market Forces
The basic assumption of Prosticks charting is that the amount of
volume and time the market spends on a price is very important. The
more active the market trades on a price, the more significant the
price is. Unfortunately, traditional charting methods such as Bar
and Candlestick charts ignore this volume and time factor and only
focus on open, high, low, and close prices. In particular, in
currencies, the open and close prices are meaningless since
currencies are traded 24 hours a day. Thus, traditional Bar and
Candlestick charts are less useful in currencies than in equities
trading.
In the Prosticks terminology, the heaviest traded price is called
the Modal Point which is represented by a dot inside the bar. After
we invent the Prosticks chart, we discover that very often this dot
is an important support or resistance level for future price
movements.
To demonstrate the usefulness of the Modal Point, refer to figure
below which shows the prosticks chart of Japanese Yen. Notice that
the low of 103.94 made in 23rd, June (marked A)
has exactly the same price level as the Modal Point of B, the
previous major low. Think about this. B is the previous major
low and since the Modal Point is the heaviest traded price, it is
where the buying forces started coming in at B which
subsequently pushed prices strongly upwards. Thus, when price falls
again to the Modal Point of B, those buying forces
resurfaced, supporting the market at the same level.
Thus, sometimes, the Modal Point is more meaningful than the high
or the low itself. The Modal Point is where buying or selling forces
accumulate.
Modal Points can be used to draw trendlines too. As can be seen
in the figure, the resistance trendline drawn by Modal Points has an
earlier entry point than the traditional trendline drawn from major
highs. For this case, the difference is not that significant.
However, we have encountered many other occasions in which the
difference is remarkable.More applications on Prosticks charting and
how to use it to forecast currency movements will be discussed later
in this weekly column.
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