Most of candle chart analytics I have seen so far relay on open/close prices.
But why is it so? This two prices are almost randomly picked from the time frame of selected length?
See example. If we have minute trades
01:01 -> 5
01:02 -> 20
…
01:59 -> 6
02:00 -> 1
…
Than candle will be green with open at 5 and close at 6, but if measurement time shifted for only one second (or even less), candle would become green with open at 20 and close at 1.
I could understand that there is something special about day open price, but what about hour/minute open/close prices? In what way are they representative for the whole frame?
I have sometimes wondered about this myself. Some people treat closing prices as something extra special. The only reason I can come up is the session opening / closing prices on stock and futures markets are indeed special and this has somehow been permeated to forex. I think from time to time it is good to challenge the assumptions of the “experts”.
I think there is some validity to session or daily open/close prices. After all, the markets have to move from some point to get to another point and without time limitations, you may never really know if you are heading in the right direction at a suitable speed. Also, as humans, we slap everything on a timeline. It is just natural for us to do so.
Your point, however, is still very well taken.
Using point and figure charts or Renko bars, charting with the time element removed, definitely has merits. The trend is identified as a trend based only on price… well, uh… trending. No time constraints. P&F charts can depict trends very clearly where typical time-based price bars or candles are most often sloppy, messy things to look at.
One drawback to charts with time removed is that what appears to be a fantastic, rocket-like move “only” took 63 years to accomplish. :o
I agree that there is some validity to marking open and close prices. This especially holds true for Daily Charts. For example, price opened higher than it did yesterday, which suggests that the bulls are stronger than the bears.
OK, I will rewrite my question-example specially for day chart case:
day open + 1 millisecond -> 5
day open + 2 milliseconds -> 20
…
day close -> 6
Since first two prices came very close to each other, they could go in reversed order,
not because of market characteristics but simply due to network latency. And this small event changes daily bar from green to red, from “open at 5” to “open at 20”.
So, my question again:
[B]Is it just me not getting the point, or significant part of technical analysis is based on two prices almost randomly picked from the opening end closing parts of time frame?[/B]
No, you’ve got it. The times picked ARE random. Network latency IS a factor. Just open two charts of the same currency pair using the same timeframe from different brokers – the prices will most likely be a bit DIFFERENT. I cannot disagree with you.
What you can observe from using time-based charts, bars, candles, whatever is that over the past hour, day, session, whatever, price steadily climbed higher during that period. Maybe price steadily dropped during that time. Price shot up and immediately fell back?. Surely, that must mean something. Then again, maybe it doesn’t.
Time-based price patterns place price in some sort of context. Without context the movements of price are somewhat meaningless. Most traders have simply adapted themselves to time-based charting because it exists and is far and away the most popular charting technique.
Move to the world of futures and time-based charting is not as predominant. Tick-based charting is actually quite common. In tick-based charting the bars, candles, whatever only move when the market moves and records an arbitrary number of ticks (just as arbitrary a technique and time-based charts, btw).
Then there are P&F and Renko charts that rely on movements of price without consideration given to time or ticks as I previously mentioned.
It is ALL arbitrary. I cannot think of a non-arbitrary method of technical analysis.
If you wish to do away with charts of all kinds because they are all arbitrary, as are the technical analysis techniques that are derived from them, then you most likely cannot be a “trader.” Supercomputers arbitrage miniscule price differentials quite nicely, banks can play off of their own order flow and you are left with what? Long term investing based on fundamentals, no charts required.