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2012issue C0980-81

Constructing trend-intensity overlays across chart scales

The historical workflow isolates a trend-intensity pair from the original bars so structure is easier to inspect. The same overlay is then read on more than one chart scale, with crossings and a possible head-and-shoulders neckline kept as visual structure rather than a unique count.

  • The average directional index is a constructed series that estimates how intense a market trend is rather than its direction alone.
  • A trend-intensity overlay keeps that intensity pair and omits the original bars so trendlines, channels, and internal structure are easier to see.
  • Chart-scale analysis compares the same overlay on arithmetic and logarithmic scales to see which crossings and outlines persist.
  • The overlays can support wave-count work, but they are not foolproof and cannot force a unique count.
Entries in this reading3 entries
Current trackChart scale analysis14 readingsHead and shoulders70 readingsAverage Directional Index79 readings

Isolating the intensity pair

The glossary defines the Average Directional Movement Index as an indicator used to measure market trend intensity. In the terms used here, the average directional index is a constructed series that estimates how intense a market trend is rather than its direction alone.

True peripherals are presented as similar to directional-movement components from that trend-intensity family. They are a directional-movement-style companion series plotted against a trend-intensity line.

Building the overlay without bars

Plotting the intensity pair together without the original bars is described as making trendlines, channels, and internal structure easier to see than on the raw bar chart. That chart is a trend-intensity overlay: it keeps the intensity pair and omits the original bars so structure is easier to inspect.

Crosses of the peripheral series through the intensity series are used as a visual device for tracking wave counts. A crossing-count is the number of times the peripheral series intersects the intensity series over a chosen lookback.

The same overlay on two scales

A weekly overlay example covers the interval from the March 2009 low through late May 2011.

Chart-scale analysis compares the same overlay history in arithmetic and logarithmic price scales to see which structures persist. A yearly arithmetic-scale overlay from the 1932 low through 2011 is annotated as a possible head-and-shoulders outline whose neckline is the line to watch.

A head-and-shoulders outline is a three-swing outline whose neckline is treated as the line that would confirm or reject the pattern. That neckline is the support line of the outline used as the confirmation threshold.

The matching yearly logarithmic-scale overlay is described as showing 25 crossings and a visual resemblance to the weekly overlay.

What the overlay cannot decide

The overlays are characterized as simple visual aids that can support wave-count work but are not foolproof and cannot force a unique count.

TradersWeek editorial reading: the open question after the scale change is whether those crossings and the arithmetic-scale neckline can still be treated as one hypothesis. That test is editorial. The historical workflow does not claim a unique count.

Educational research material, not investment advice. Historical source context does not establish present-day performance.
11 of 14 in the Chart scale analysis track
20158-11 pp.Next on Chart scale analysisIndex drawdown caps, chart-scale stops, and leverageIndex-drawdown sizing left new-trade allocation unchanged until the index was 20 percent below its peak, then halved the dollar amount for every further 10 percent decline, and then reduced size again for market and stock volatility.
All readings on this track · 14 readings
  1. 1982Constructing semi-log scales for trend channels
  2. 1988Treat a suspected bend as a construction test
  3. 1989Constructing percentage-box point-and-figure charts
  4. 1989Constructing point-and-figure objectives across chart scales
  5. 1991Unfinished point-and-figure until filter, scale, and pivots measure percent
  6. 1992A logarithmic point-and-figure construction with weekly breadth scores
  7. 1995Constructing a least-squares trend channel with two-standard-deviation rails
  8. 1995Percentage boxes turn a three-box reversal into a scale decision
  9. 2003Log scale trendlines and compound growth
  10. 2007Trendline and channel construction on linear versus log scales
  11. 2012Constructing trend-intensity overlays across chart scales
  12. 2015Index drawdown caps, chart-scale stops, and leverage
  13. 2016Evaluating breakouts by share-price band
  14. 2016Constructing chart scale with a golden-rectangle aspect ratio
By fieldIndicators and filters874 readingsBy year2012165 readings
All 14 readings tagged Chart scale analysis
Also on Chart scale analysis5 readings
1982Constructing semi-log scales for trend channels1988Treat a suspected bend as a construction test1989Constructing percentage-box point-and-figure charts1989Constructing point-and-figure objectives across chart scales1991Unfinished point-and-figure until filter, scale, and pivots measure percent