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Introducing SwamiCharts
Traditional technical indicators tend to provide a adaptive to measured market conditions. Alterna-
narrow view of the market. This technique can give tive techniques have been suggested, but each has
you a broader one and help you select an indicator inherent limitations:
lookback period.
1 The visualization may be narrow in scope.
You’re not seeing the big-picture view of the
indicator’s response to a range of periods.
H
ere’s to technology in the 21st century! 2 The process of dynamically adjusting the
Computer hardware is fast and plentiful, lookback period introduces noise.
with GPU graphics processors in our tablets
3 Adaptive techniques introduce lag.
and smartphones, and now, we can catch
up with visualization improvements in our technical Traditional indicators give you details, but what
indicators. The SwamiCharts data visualization tech- does it mean? For example, a chart of the RSI shows
nique is a mosaic of technical indicator readings at you precisely when the indicator crosses over 80, but
multiple lookback periods, with each reading pieced does this occurrence always indicate the same thing?
together into a heatmap chart. This technique retains SwamiCharts offer a tradeoff for a better visualiza-
the core functionality of the technical indicators you tion — a wider view of the indicator’s true meaning.
are already familiar with while condensing more In addition, SwamiCharts provide a solution in the
information into an easy-to-interpret heatmap. choice of lookback period. And of course, you can
In this, the first of several articles, we introduce always continue to plot your old favorite classic
SwamiCharts as a better way to visualize technical indicator alongside a SwamiCharts version if you
indicators in a big-picture context. We illustrate why so choose.
the narrow scope offered by traditional indicators In this article you will see several classic technical
can result in a myopic view and how SwamiCharts indicators rendered as SwamiCharts and be given
solves this issue. tips on how to write your own indicators that way
as well.
What’s a good lookback period?
When J. Welles Wilder introduced the relative SwamiCharts basics
strength index (RSI) in the late 1970s, a number of SwamiCharts are created as technical indicator read-
early technicians questioned why he used a 14-day ings at multiple lookback periods, with a resulting
lookback period. This led one of these authors of this
article, John Ehlers, to a decades-long quest for the
“correct” lookback period and spawned the idea for SwamiCharts is a mosaic of
BRUCE WALDMAN
Swami classic
indicators
The Aroon indicator was intro-
duced by Tushar Chande. Chande
designed the Aroon to distinguish
between periods of trending versus
trading ranges. Green indicates
uptrends, while red indicates
downtrends. As with SwamiCharts
stochastics, the lower portion of
the chart shows shorter lookback
periods and gives you an early
view, while the middle portion pro-
vides confirmation and the upper
portion (longest lookback periods)
provides continuation.
SwamiCharts Aroon gives you
additional insight into the confir-
mation and continuation of the
trend because you are visualizing
a composite of lookback range
FIGURE 3: SWAMICHARTS RSI AND SWAMI STOCHASTIC. From these charts you can see that they show similar information.
from 12 to 48 bars. An early emer-
The green areas show when the market is moving up, the red areas show when the market is moving down, and yellow denotes gence of an uptrend (downtrend)
the transition region between the two. As you would expect, the signals at the bottom of the charts occur before those same signals is identified by a transition from
appear at the elevation midpoint and top of the chart. red to green (green to red) at the
Copyright © Technical Analysis Inc.
Stocks & Commodities V. 30:3 (14-22): Introducing SwamiCharts by John Ehlers and Ric Way
lower lookback periods (bottom of the chart). If the trend is Advanced Swami
confirmed and continues, the indicator will stairstep to longer Charts indicators
lookback periods. An abrupt color change at multiple lookback For those interested in program-
periods often signals a significant change. ming, we encourage you to
The SwamiCharts CCI is an indicator based on the classic create SwamiCharts versions
commodity channel index (CCI) oscillator. An overbought of your favorites. In the course
(bearish) condition is shown in red and an oversold (bull- of developing SwamiCharts, we
ish) condition is shown in green. A yellow color indicates feel we have developed a deeper
an intermediate condition. SwamiCharts CCI gives a larger understanding of complete
overview by using channel lengths that vary from 12 to 48 bars market activity, and you may
in the vertical scale and by displaying the position relative to feel the same when you see your own results. If you attempt
the channel using colors. Green represents a position in the to program your own traditional indicators as SwamiCharts,
upper part of the channel and red represents a position in the you will find some real dogs — indicators that don’t indicate
lower part of the channel, with yellow being an intermediate anything, or worse yet, the wrong thing.
position. We have created some advanced SwamiCharts indicators and
The RSI is a well-known momentum oscillator that mea- will be describing their use in the next article of this series.
sures the speed and change of price movements. It does so by
measuring the sum of the differential closes up to the absolute S&C Contributing Editor John Ehlers is a pioneer in the use
value of all differential closes, usually over a period of 14 of cycles and DSP techniques in technical analysis. He is
days. Despite being developed before the computer age, RSI the author of the MESA9 program, is the chief scientist for
remains popular. SwamiCharts RSI gives you an early view stockspotter.com, and is the inventor of SwamiCharts. Ric
of the change of price movements by varying the calculation Way is an independent software developer specializing in
period over a range of lookback periods. As a result, you programming algorithmic trading systems in C#. He may be
see both the early stages of a price movement at the shorter reached at ricway@taosgroup.org.
periods (near the bottom of the SwamiChart) and a measure TradeStation and NinjaTrader source code for SwamiCh-
of the persistence of the movement for longer periods at the arts renditions of several classic technical indicators (Aroon,
top of the chart. commodity channel index [CCI], RSI, and stochastics) may
Stochastics is another popular price oscillator that has be downloaded for free at SwamiCharts.com. In addition,
withstood the test of time. The Swami stochastics indicator SwamiCharts indicators will be available on the ThinkOr-
becomes green when entering an expected bullish period and Swim platform.
red when entering an expected bearish period. When yellow,
the indicator is indeterminate. The stochastics indicator is a Suggested reading
momentum oscillator that measures the speed and change of Chande, Tushar [2001]. Beyond Technical Analysis: How To
price movements. It does this by measuring the position of the Develop And Implement A Winning Trading System, 2d
current closing price relative to the highest close and lowest ed., John Wiley & Sons.
close in recent history. _____, and Stanley Kroll [1994]. The New Technical Trader,
SwamiCharts stochastics gives you an early view of the John Wiley & Sons.
change of price movements by varying the calculation pe- Ehlers, John F. [2001]. Rocket Science For Traders, John
riod over a range from 12 to 48 bars and displaying price Wiley & Sons.
movement to the upside as green and price movement to the ‡EasyLanguage ‡MESA9
downside as red. As a result, you see both the early stages
of a price movement for the shorter periods and a measure See our Traders’ Tips section beginning on page 62 for implemen-
of the persistence of the movement for longer periods at the tation and commentary of John Ehlers and Ric Way’s technique in
top of the subgraph. various technical analysis programs. Accompanying program code
can be found in the Traders’ Tips area at Traders.com.
ninjatrader.com
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