Building Winning Trading Systems with TradeStation®, + Website, 2nd Edition

CHAPTER 9

Using TradeStation's Percent Change Charts to Track Relative Performance1

We ran into Jan Arps, and because of his knowledge and experience with TradeSta-tion products, asked if he would like to contribute to our book. He accepted our offer and wrote an interesting chapter on selecting markets through the use of TradeStation's Percentage Change charts.

Technical analysis generally consists of two parts: selection and timing. Selection is the process of deciding which stock, mutual fund, option or futures contract, among the thousands available to you, to trade at any particular point in time. Timing, on the other hand, is the process of determining when to enter and exit a trade once you have selected a suitable tradeable.

There are numerous methods, both fundamental and technical, that can help in the selection process. One of the selection questions many traders ask is, “How has this stock performed relative to alternative choices recently, and which is likely to be the strongest in the upcoming time frame?” In order to answer this question, we must be able to provide a level playing field for comparing tradeables whose various prices could range from a dollar to hundreds of dollars.

For example, let's say you are comparing a $10 stock with a $100 stock. Since the beginning of the quarter, both of these stocks have gone up exactly $10. If you plot these stocks on the same standard price chart with a linear price scale, the charts of the two stocks will show an identical ...