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Registered User
Joined: 3/9/2006
Posts: 39
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Hello:
I need some help with the FX comparision graphs. Can you point me to some materials or help me interpret, for example, FX10 comparision graph plotted against a ticker.
I see the comparision chart slope change dramatically as I change from 1 day to weekly chart but I don't understand it... and it seems when I change the comparision from FX10 to say FX500, the comparision chart seems to change only slightly...
thanks!
Sundeep.
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Worden Trainer
Joined: 10/1/2004
Posts: 4,308
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I don't think using the FX's as a comparison symbol is the best way to go, since comparison symbols are plotted on their own scale. Also, the Fx's will always be a straight, upsloping line.
Try this instead. Plot Relative Strength in the middle or bottom window, and use one of the FX's as the Comparison Symbol. Let's say you use FX10. When you see the RS line declining, you know that your ticker is underperforming a 10% rate of return. When you see the RS line rising, you know that your ticker is outperforming a straight 10% rate of return.
Some people will also plot a moving average of that RS line. When the RS line crosses down through it's moving average, they look at that as confirmation that there is a downtrend in the RS, indicating that the stock is underperforming the desired rate of return...thus they use it as a sell signal. I'm not advocating that you use it as such, I'm just stating that some people do.
I think you'll get much more out of the FX's if you use them in this way.
- Doug
Teaching Online!
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Registered User
Joined: 1/1/2005
Posts: 2,645
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Sundeep,
You MUST be on Logarithmic Scale in order for the following statements to be true. Let the Comparison Symbol be FXnn.
1) The plot of the Comparison Symbol is a straight line increasing at the rate of nn% per annum compounded daily.
2) If you place a Linear Regression (LR) Line on Prices, then the LR Line is increasing at an annual rate, compounded daily, greater than nn% if and only if the slope of the LR Line is greater than the slope of the Comparison Symbol Line.
You can be on either Arithmetic Scale or Logarithmic Scale and the following is true. Let the Relative Strength (RS) Comparison Symbol be FXnn.
1) Suppose we observe the relative levels of the RS Curve on some initial day and some later final day. The Closing Price has increasing at an annual rate, compounded daily, greater than nn% if and only if the level of the RS Curve on the final day is above the level on the initial day.
As for your question:
"Can you point me to some materials or help me interpret, for example, FX10 comparision graph plotted against a ticker."
When on Logarithmic Scale, the FX10 comparison graph is a straight line increasing at an annual rate of 10% compoumded daily. Any straight line on the Price Chart, using the Price Scale, is increasing at an annual rate greater than 10% compounded daily if an only if its slope is greater than that of the FX10 Comparison Symbol Line. As a warning, this is NOT true when on Arithmetic Scale.
In response to your observation:
"... it seems when I change the comparision from FX10 to say FX500, the comparision chart seems to change only slightly..."
That depends on the Stock Symbol. When on Logarithmic Scale, a change of the Comparison Symbol from FX10 to FX500 can change the Price plot or the Comparisn plot radically. One or the other curve will fill the screen. If you draw a line between the lowest low and the highest high on the Price Chart and the magnitude of the slope of that line is considerably greater than the slope of the FX500 Comparison Symbol Line there will appear to be little chamge from the FX10 Line to the FX500 Line. But looks can be deceiving.
The RS Curve would have considerably more utility if it were a plot of the logarithm of the Price ratio rather than just the Price ratio. But, it is difficult to break with tradition.
Thanks,
Jim Murphy
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Registered User
Joined: 3/9/2006
Posts: 39
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Thank you both, Doug & Jim. I appreciate the detailed response. This helps a lot!
Sundeep.
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