MQ ValueCharts(R)
What does ValueCharts(R) do?
There are three primary attributes that help determine price, and that's Cost, Momentum and Value. ValueCharts(R) provides the value component in helping to understand whether price is overpriced or underpriced, which can help determine the optimal time to get into or out of a market. ValueCharts(R) is designed to identify when a stock, option, futures, forex, crypto, index, etc. is overvalued, fairly valued, or undervalued. If a market is overvalued, then it's less likely to keep rising in price. If a market is undervalued, then it's less likely for its price to continue falling.
How does ValueCharts(R) work?
ValueCharts(R) calculates value based on price variability. It analyzes price ranges and movement over a user-specified number of bars to identify when price is at a value extreme relative to a longer-term view of price variability. ValueCharts(R) is an original indicator based on the patented ValueCharts concept (U.S. Patent No. 7,461,023), which is held by the script author. The validity of the ValueCharts algorithm has been vetted by leading experts at Wharton School of Business, the University of Michigan, and UCLA.
Since value is often related to recent price action, two equal adjacent bars with identical open, high, low, and close may have different value scores, since an equal prior bar can affect the value of the current bar. Thus, value can vary even when price does not move. Value varies by timeframe as well, allowing users to identify value correlation between timeframes within the same market. Users can identify being significantly overvalued on a daily chart and adjust their intraday trading with the daily value in mind. Users can adjust the number of bars considered in the calculations to provide a shorter-time view with higher responsiveness, or a longer-term view that reflects a more gradual value scoring. Smaller AnalysisPeriod input values, such as 5, result in greater responsiveness of the indicator to reflect more immediate value extremes. Larger values, such as 14, are more applicable to longer multi-day trades and longer value trends, while shorter inputs are more useful for day trading, for example. A second input, ScalingMultiplier, is a multiplying factor that is generally left unchanged at 0.2, but can be used to linearly expand or contract the subgraph plot values.
We generally find lower AnalysisPeriod values to work best as they provide the greatest responsiveness, even across higher timeframes. ValueCharts(R) determines a mathematical score for each bar's open, high, low and close, and plots the results on a subgraph as an OHLC bar atop color ranges drawn as regions on the subpanel. The color ranges depict 5 different states: Significantly Overvalued (Upper Red), Moderately Overvalued (Upper Yellow), Fairly Valued (Middle Green), Moderately Undervalued (Lower Yellow), and Significantly Undervalued (Lower Red). This makes it simple for users to identify when value is in any of these 5 states so they can make informed decisions about where price may go next, helping to determine when to get in or out of trades.
How is ValueCharts(R) best used?
ValueCharts(R) scores its results and maps them onto a color-coded subgraph to inform the user of the current Value status. Users typically monitor the high point and low points of the bar plot within the indicator to identify what color band each bar reaches. If a bar reaches into a color band, then we consider that bar to be in that state. For example, if a ValueCharts bar reaches into the upper red zone, then it's considered "Significantly Overvalued", and the corresponding price bar is considered "significantly overvalued". Our analysis has shown that when a price bar is significantly overvalued, there's a greater than 90% chance that price will not continue much further, and could possibly reverse at that point. Similarly, when a bar is considered Significantly Undervalued, there's a greater than 90% chance that price will stop falling, perhaps moving sideways, or even reverse higher. This doesn't happen all time, of course, and some markets respond more faithfully than others. Users can see the historical plots to determine whether the current market is aligning well with the signals in the currently selected timeframe. While no one can guarantee what the next bar will do, we can quickly see whether previous ValueCharts(R) signals have worked well for this symbol and timeframe.
Value Zones are as follows:
The yellow zones depict moderately over- and undervalued zones, where there's a roughly 67% chance that a market will stop moving in that direction. In the center, the green "Fairly Valued" zone is when a market is neither over- nor undervalued. We can sometimes use this zone as a "Value Reset" area, where we move back to a neutral value position, and can move in either an over- or undervalued direction from there. We often see that momentum will continue to push value into the opposite extreme rather than reverse. This works well, as we can sometimes experience markets that are cycling from overvalued to undervalued and back again, which is especially applicable to non-trending markets.
Multi-timeframe Convergence
We can also use ValueCharts(R) across multiple timeframes for the same symbol to identify Multi-Timeframe Value Convergence. If we are significantly Overvalued on more than one timeframe, it creates a more compelling value case than one timeframe alone. In addition, Value state can be more significant on a higher timeframe. We use this concept in implementing a no-trade filter, for example, where if we're significantly undervalued on the 240-minute chart, we refrain from taking bearish trades for the remainder of that trading day, since there's a greater than 90% chance that price will not move lower once it's Value is significantly undervalued.
Inputs:
AnalysisPeriod Value from 5 to n, identifies how many bars of history to consider in value determination, defaults to 5 for fastest responsiveness, though some longer-term traders prefer 14.
Mult A scaling multiplier to amplify the results. Typically keep this at 0.2
SignificantColor Color of the Significantly Overvalued and Significantly Undervalued color ranges, defaults to Red
ModerateColor Color of the Moderately Overvalued and Moderately Undervalued color ranges, defaults to Yellow
FairColor Color of the Fairly Valued color range, defaults to Green
BarColor Color of the bar that overlays the Value color bands within the indicator plot. Defaults to Gray so it appears on both light and dark charts. Suggest using White or Black depending on dark or light colored charts.
Transparency The % transparency level of the indicator's color regions, making it easier to see the Value OHLC bar that appears in front of it. Defaults to 60 for 60%. 0 is opaque, 100 is fully transparent.
Version Provides the version number / ID of the indicator
Additional usage suggestions
Visibility: ValueCharts(R) works on either a light or dark color theme. By default, the indicator's OHLC bars are gray, which is visible on either color theme. You can increase the contrast by changing the Bar Color input to Black on a light background, or to White on a dark background. You can also enhance the visibility by setting the input, Color Transparency to a larger number, such as 60. This will mute the colors, allowing the OHLC bars to stand out more.
There are three primary attributes that help determine price, and that's Cost, Momentum and Value. ValueCharts(R) provides the value component in helping to understand whether price is overpriced or underpriced, which can help determine the optimal time to get into or out of a market. ValueCharts(R) is designed to identify when a stock, option, futures, forex, crypto, index, etc. is overvalued, fairly valued, or undervalued. If a market is overvalued, then it's less likely to keep rising in price. If a market is undervalued, then it's less likely for its price to continue falling.
How does ValueCharts(R) work?
ValueCharts(R) calculates value based on price variability. It analyzes price ranges and movement over a user-specified number of bars to identify when price is at a value extreme relative to a longer-term view of price variability. ValueCharts(R) is an original indicator based on the patented ValueCharts concept (U.S. Patent No. 7,461,023), which is held by the script author. The validity of the ValueCharts algorithm has been vetted by leading experts at Wharton School of Business, the University of Michigan, and UCLA.
Since value is often related to recent price action, two equal adjacent bars with identical open, high, low, and close may have different value scores, since an equal prior bar can affect the value of the current bar. Thus, value can vary even when price does not move. Value varies by timeframe as well, allowing users to identify value correlation between timeframes within the same market. Users can identify being significantly overvalued on a daily chart and adjust their intraday trading with the daily value in mind. Users can adjust the number of bars considered in the calculations to provide a shorter-time view with higher responsiveness, or a longer-term view that reflects a more gradual value scoring. Smaller AnalysisPeriod input values, such as 5, result in greater responsiveness of the indicator to reflect more immediate value extremes. Larger values, such as 14, are more applicable to longer multi-day trades and longer value trends, while shorter inputs are more useful for day trading, for example. A second input, ScalingMultiplier, is a multiplying factor that is generally left unchanged at 0.2, but can be used to linearly expand or contract the subgraph plot values.
We generally find lower AnalysisPeriod values to work best as they provide the greatest responsiveness, even across higher timeframes. ValueCharts(R) determines a mathematical score for each bar's open, high, low and close, and plots the results on a subgraph as an OHLC bar atop color ranges drawn as regions on the subpanel. The color ranges depict 5 different states: Significantly Overvalued (Upper Red), Moderately Overvalued (Upper Yellow), Fairly Valued (Middle Green), Moderately Undervalued (Lower Yellow), and Significantly Undervalued (Lower Red). This makes it simple for users to identify when value is in any of these 5 states so they can make informed decisions about where price may go next, helping to determine when to get in or out of trades.
How is ValueCharts(R) best used?
ValueCharts(R) scores its results and maps them onto a color-coded subgraph to inform the user of the current Value status. Users typically monitor the high point and low points of the bar plot within the indicator to identify what color band each bar reaches. If a bar reaches into a color band, then we consider that bar to be in that state. For example, if a ValueCharts bar reaches into the upper red zone, then it's considered "Significantly Overvalued", and the corresponding price bar is considered "significantly overvalued". Our analysis has shown that when a price bar is significantly overvalued, there's a greater than 90% chance that price will not continue much further, and could possibly reverse at that point. Similarly, when a bar is considered Significantly Undervalued, there's a greater than 90% chance that price will stop falling, perhaps moving sideways, or even reverse higher. This doesn't happen all time, of course, and some markets respond more faithfully than others. Users can see the historical plots to determine whether the current market is aligning well with the signals in the currently selected timeframe. While no one can guarantee what the next bar will do, we can quickly see whether previous ValueCharts(R) signals have worked well for this symbol and timeframe.
Value Zones are as follows:
- Significantly Overvalued (red)
Moderately Overvalued (yellow)
Fairly Valued (green)
Moderately Undervalued (yellow)
Significantly Undervalued (red)
The yellow zones depict moderately over- and undervalued zones, where there's a roughly 67% chance that a market will stop moving in that direction. In the center, the green "Fairly Valued" zone is when a market is neither over- nor undervalued. We can sometimes use this zone as a "Value Reset" area, where we move back to a neutral value position, and can move in either an over- or undervalued direction from there. We often see that momentum will continue to push value into the opposite extreme rather than reverse. This works well, as we can sometimes experience markets that are cycling from overvalued to undervalued and back again, which is especially applicable to non-trending markets.
Multi-timeframe Convergence
We can also use ValueCharts(R) across multiple timeframes for the same symbol to identify Multi-Timeframe Value Convergence. If we are significantly Overvalued on more than one timeframe, it creates a more compelling value case than one timeframe alone. In addition, Value state can be more significant on a higher timeframe. We use this concept in implementing a no-trade filter, for example, where if we're significantly undervalued on the 240-minute chart, we refrain from taking bearish trades for the remainder of that trading day, since there's a greater than 90% chance that price will not move lower once it's Value is significantly undervalued.
Inputs:
AnalysisPeriod Value from 5 to n, identifies how many bars of history to consider in value determination, defaults to 5 for fastest responsiveness, though some longer-term traders prefer 14.
Mult A scaling multiplier to amplify the results. Typically keep this at 0.2
SignificantColor Color of the Significantly Overvalued and Significantly Undervalued color ranges, defaults to Red
ModerateColor Color of the Moderately Overvalued and Moderately Undervalued color ranges, defaults to Yellow
FairColor Color of the Fairly Valued color range, defaults to Green
BarColor Color of the bar that overlays the Value color bands within the indicator plot. Defaults to Gray so it appears on both light and dark charts. Suggest using White or Black depending on dark or light colored charts.
Transparency The % transparency level of the indicator's color regions, making it easier to see the Value OHLC bar that appears in front of it. Defaults to 60 for 60%. 0 is opaque, 100 is fully transparent.
Version Provides the version number / ID of the indicator
Additional usage suggestions
Visibility: ValueCharts(R) works on either a light or dark color theme. By default, the indicator's OHLC bars are gray, which is visible on either color theme. You can increase the contrast by changing the Bar Color input to Black on a light background, or to White on a dark background. You can also enhance the visibility by setting the input, Color Transparency to a larger number, such as 60. This will mute the colors, allowing the OHLC bars to stand out more.