Wednesday, June 13, 2012

Issue 42

Wednesday, September 12, 2012

A Fresh Look at ActivityBar Technology

Frederic Palmliden, CMT
Senior Quantitative Analyst
TSLabs@TradeStation.com

Features
Focus: Technical

Studies/Files Included:
Workspace

Markets: Equities, Futures, Forex

Time Perspective: Intermediate-term,

Long-term

Indicator

Summary
TradeStations ActivityData provides an interesting angle from which to view market prices and better
understand the positioning of buyers and sellers. This paper introduces a new custom ActivityBar study that
combines market data over many days to help identify support and resistance levels as well as the markets
intermediate- to long-term direction. Designed to provide context to current price action, this Analysis
Technique is similar to Market Profile, a registered trademark of the CME Group.
Figure 1: EURUSD with the TS Labs ActivityBar Study Covering 200 Trading Days

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Background
Originated by J. Peter Steidlmayer, Market Profile is a frequency distribution of intraday price movements
centered on time versus volume. Steidlmayer formalized this technique in 1985 while he was a director of
the Chicago Board of Trade, which copyrighted his work as Market Profile and Liquidity Data Bank. The
original intent was to give traders a way to see how trading took place. Analysis of Market Profile originally
offered a count of how many times a price traded at one level, but more important, enabled traders to
separate market participants by time frame and even helped identify their trading patterns.1
Originally, different letters denoting each sequential 30-minute time period were accumulated for each
2
trading day and analysis was performed to determine who participated in the trade at each price. When
using half-hour intervals, all prices that were traded during each interval would be marked by the same
letter, starting with the letter A. Notice the area highlighted by the red rectangle in table 1 below.
Steidlmayers work is described as follows by Perry J. Kaufman in his book, New Trading Systems and
Methods:
He (Steidlmayer) spent considerable time studying and classifying formations, and
separating days into three primary categories: normal, trending, and non-trending. A
normal day forms a standard bell-shaped curve with the widest point positioned near the
center; this point is called the value area. On a trending day the value area is not as wide
and appears closer to one end of the distribution. A non-trending day has neither of the
two recognizable patterns. There is an important philosophic basis for Steidlmayers work.
It is a very credible attempt to explain how the market functions. He says the market
probes high prices to attract sellers and low prices to attract buyers. This creates a value
area. By observing the patterns of intraday price distribution you can know whether there
are countertrend opportunities, when prices reach the extremes of perceived value on a
normal day, or when trend opportunities exist in the direction of current price movement.3
Table 1: Original Market Profile for 30-Year Treasury Bonds

Different terminology has been associated with Market Profile. For example, the point of control is the asset
price with the greatest number of time price opportunities (TPO) and is the center of the value area. Much
work has been dedicated to Market Profile. Additional information on Market Profile may be found in books
written by J. Peter Steidlmayer, James F. Dalton, Eric T. Jones and Robert Dalton.

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TradeStations ActivityBar Studies

The custom study provided in this paper is derived from TradeStations ActivityBar technology, which is
similar in concept to Market Profile. ActivityBars are a type of TradeStation Analysis Technique, along with
TradeStation Indicators and ShowMe and PaintBar studies. The supplied Price Distribution ActivityBar
study uses cells to show the range of prices for each pass of a second bar interval, known as ActivityData,
within the price bar (see figure 2 below). The ActivityData is a hidden data stream running behind the
TradeStation chart and has a smaller interval than the main bar interval used in the chart (e.g., Bar interval =
daily, ActivityData interval = 30 minutes). The number of cells distributed on any one row or among several
rows reveals in how many of the ActivityData intervals the price occurred.
The Price Distribution ActivityBar draws letters in each cell, beginning with the letter "A" and ending with "Z."
The letter in the cell is changed to the next letter with each ActivityData interval. When all 26 letters in the
alphabet are used, the numbers 1-9 are displayed. When these are used, an asterisk (*) is displayed in the
rest of the cells. The cells added by this study use a cycle of colors or the color specified by the DefaultColor
input.
Figure 2: Facebook (FB) with the Price Distribution ActivityBar

TSLabs: ActivityBar Study Description

The purpose of the new custom ActivityBar study is to merge the price activity of a single security over a
long period of time (up to about 12 years of data) and provide a view of the market activitys historical
progression by using gradient colors. The differently colored cells are displayed to the right of the last bar on
the chart and are based on price and volume over time. Although the ActivityData is hidden behind the chart,
its interval resolution and historical look-back are set using the Data Settings tab within the Format
ActivityBar dialog (see figure 3 below).

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Figure 3: ActivityBar Data Settings Tab

The custom study also has a number of user-editable options. These different inputs for the custom study
are listed in table 2 below.
Table 2: Custom ActivityBar Study Inputs
Input
BarNum

Default
200

Description
Number of bars used in the ActivityBar study

BlockSize

ABColor1

Red

ABColor2

Yellow

Ending color for the ActivityBar (color used for the most recent ActivityData)

TextDisplay

False

Boolean switch to display the number of bars used in the ActivityBar study

ZoneDisplay

False

Boolean switch to display the ActivityZone

MedianOrMode
StdDevNum

Volume filter for each ActivityData interval

Starting color for the ActivityBar (color used for the oldest ActivityData)

1 {Median = 1,
Mode = 2}

Numerical switch to either use the median price or the mode price as the center of
the ActivityZone

Number of standard deviations around the center of the ActivityZone to determine

the zone high and zone low

The BarNum input fine-tunes the look-back number in the Data Settings tab, and it may need to be reduced
if the custom study doesnt display properly. If needed, decrease the BarNum value progressively from the
value specified in the Data Settings tab until the study displays properly. Only one ActivityBar study is visible
in the chart when the study is displayed properly. A greater adjustment is needed when the volume filter
(discussed below) is used and when a larger look-back period is used.

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Also, the technology behind all ActivityBars automatically creates space for the following days display at the
end of the current session. Therefore, the display of the custom study becomes truncated after the close up
until the next day. Additionally, the chart needs to be refreshed daily in order for the custom study to display
properly.
The BlockSize input acts as a filter for the ActivityData. The only ActivityData that is being used for the study
is the ActivityData that occurs with the stipulated minimum volume. The BlockSize value corresponds to the
volume per ActivityData interval, not the volume per trade. This filter becomes especially helpful when long
look-back periods are used and when the display of the custom study becomes too large to view on the
screen.
Background dragging functionality may be used to help with viewing the custom study. Enable this
functionality by right-clicking in the chart and selecting the Background Dragging option from the shortcut
menu. Once enabled, click and drag the right axis for easier viewing of the custom study.
Any two colors that are accessible via EasyLanguage may be used as ABColor1 and ABColor2. The inputs
can either be the color name or the EasyLanguage numerical value (e.g., Black and 1 will both result in the
color black). While a wide array of colors is available, choosing two colors helps distinguish the progression
of the ActivityData throughout the covered time frame. For instance, a darker color may be chosen for the
older data and a lighter color for the most recent data.
The TextDisplay acts as a reminder and displays the BarNum value directly in the chart above the custom
study. The font of the text is the color specified in the ABColor1 input.
The ActivityZone (controlled by the ZoneDisplay input) comes from the Value Area concept of the Market
Profile, but there are several notable differences. The center of the zone is either the mode or the median of
the ActivityData (see the MedianOrMode input). Also, the zone high and zone low are calculated using a
user-specified number of standard deviations around the center of the zone (see the StdDevNum input).

TSLabs: ActivityBar Study Analysis

The custom study may be applied to different asset classes on different bar intervals as shown in the
following examples. In figure 4 below, the TSLabs: ActivityBar is applied to the continuous E-mini S&P 500
futures contract (@ES) using a daily bar interval. This example encompasses about 12 years of data, by
setting the Days Back field to 3000 (250 trading days per year). The ActivityData interval is set to 240
minutes, while the BarNum input is adjusted to 2888 for proper display. Additionally, since such a long
period of time is being used, the BlockSize is set to 50000 in order to trim the amount of ActivityData for
easier viewing.

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Figure 4: E-mini S&P 500 Continuous Futures Contract (@ES) with the TSLabs ActivityBar Study Covering About
12 Years of Data

Numerous interesting observations can be made from figure 4. While a bell-shaped curve is observable,
there is a positive skew to the distribution. If rotated counter-clockwise 90 degrees, the distribution has many
outliers in the right tail. The picture is showing that lower prices were traded more often than higher prices
when considering the highest point in the distribution as the reference point. Also, the skewness affects the
location of the mean, median and mode. If the distribution were a normal distribution, the mean would equal
the median and mode. In a positively skewed distribution, the mode is less than the median, which is less
than the mean. Since the distribution is flipped to the side in this application, the mode is higher than the
median, which is higher than the mean. This can easily be seen in the chart by looking at the ActivityZone.
Notice that the highest frequency in the distribution (i.e., the mode) just below 1,300 is higher than the
median, since the median is used as the center of the ActivityZone in this example.
Notice also the different spikes in the distribution, such as the spike just above 1,000. This particular spike is
about 40 points wide at its base. This helps illustrate that support and resistance levels are not hard levels.
Instead, there are areas of support and resistance. Another way to look at it would be to consider a certain
percentage band around a particular level that could act as support and resistance.
The last interesting observation here is that the ActivityZones high and low fall in crevasses in the
distribution (see the gray horizontal lines in figure 4 above). This goes against the idea that those levels act
as support and resistance in this particular example.
In figure 5 below, the TSLabs: ActivityBar study is applied to the AUDUSD using a custom session to
capture the 3:00 a.m.12:00 p.m. ET London session. The study can then be compared to the ActivityData
for the same look-back using the 8:00 a.m.5:00 p.m. New York session (see figure 6 below).

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Figure 5: AUDUSD with the TSLabs ActivityBar Study Covering Only the London Session for 50 Trading Days (as
of 7/26/12)

While the different mounts are located at about the same locations, it is interesting to see that certain levels
experience different amounts of activity depending on which session is taking place. Notice, for example, the
height of the ActivityData just above 0.97 during the U.S. session versus the level of activity at the same
level during the European session. The figures show that the AUDUSD currency found strong support
around 0.97 during the U.S. session and rallied hard for the last two months or so. A similar conclusion
could be drawn by analyzing an intraday chart that covers two months of data, but the beauty of the
ActivityData is that it summarizes all the data into one picture. No need to scroll the price chart back; the
distribution of the ActivityData and the gradient colors tell the whole story.
Figure 6: EURUSD with the TSLabs ActivityBar Study Covering Only the N.Y. Session for 50 Trading Days (as of
7/26/12)

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While the main function of the custom ActivityBar study is to give context to the currently traded level of a
security, the study also helps to illuminate the progression of the price activity as illustrated in the previous
examples. Another point worth mentioning is that a large amount of time is usually required in order for the
ActivityData distribution to start taking on a bell shape. However, even then, a perfect normal distribution is
exceptionally rare. The last two charts illustrate that the typical activity data distribution is more of a jagged
distribution, especially when the look-back period is limited.
In the next example, the custom study shows that it can also help determine a securitys projected path.
Here, the custom study is applied to the E-mini S&P 500; as of the time of this writing (12:12 p.m. on July
26, 2012), the futures contract was just testing the highest mount of the distribution (see figure 7 below).
According to figure 7, a breach of support could lead to a drop to around 1,320, with possible intermediate
support around 1,339. On the other hand, if support holds, the next two levels of resistance come in at 1,352
and 1,359, according to the chart.
Now, one day later (11:23 a.m. on July 27, 2012), looking back at the price action, the ES held the
mentioned support and rallied to test 1,352, which was fairly quickly broken and became support for the rest
of the afternoon. The ES was even able to test 1,359 shortly before the end of the regular U.S. trading
session. Overnight, the ES traded mostly sideways between the two levels (i.e., 1,352 and 1,359).
Interestingly, the low of the overnight session was 1,352.75, which took place around 5:20 a.m. ET.
Thereafter, the ES was finally able to breach 1,359, and as of the time of this writing is trending higher,
pushing higher around 1,370.
Figure 7: E-mini S&P 500 Continuous Futures Contract (@ES) with the TSLabs ActivityBar Study

Conclusion
The TS Labs ActivityBar study revitalizes the technology behind ActivityData and provides numerous
applications. The custom study not only provides context to the current trading of a security by revealing
where the current trading is taking place in relation to past activity, but the study also helps in identifying
future possible areas of support and resistance. You can now use the custom study with your favorite
securities to see what the ActivityData looks like with different look-back periods and different bar intervals.
You may be surprised. For example, you may discover areas of support and resistance that were hidden
before and use the findings to complement your trading style. Some price activity may be challenging to
read by analyzing a traditional price chart, but the custom ActivityBar simplifies the process and provides a

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summary in a colorful picture. The custom study provides a map that summarizes where trading has been
and may point to where trading is headed.

Works Cited
1

Perry J. Kaufman. New Trading Systems and Methods. 4th Edition. Wiley; 2005:771.

F.M. Doc Haynie. Stretching the Profile to Cover 24-Hour Markets. Futures. February 1992.

Perry J. Kaufman. New Trading Systems and Methods. 4th Edition. Wiley; 2005:773.

Perry J. Kaufman. New Trading Systems and Methods. 4th Edition. Wiley; 2005:772.

To use the files provided with this issue of Analysis Concepts:

Files with extension .eld These contain EasyLanguage documents: analysis techniques and
strategies. Double-clicking on this file will start the Easy Language Import Wizard. Follow the prompts to
completion. The analysis techniques or strategies will automatically be placed in the correct locations for
your use in TradeStation. This should be done before opening any workspaces provided.
Files with extension .tsw These are TradeStation workspaces. These may be stored in any folder
where you choose to save TradeStation workspaces.
Files with extension .txt These are text versions of the EasyLanguage documents and are generally
used only by advanced EasyLanguage users.
Other supporting documents or files may also be attached to the report.

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