You may have noticed that lately, I’ve been talking a lot about the Hawkeye “Rules of the Road.”
That’s because I’ve been getting a lot of questions about the foundations of this powerful software and how it tracks the market to provide savvy investors with consistent, sizable returns.
Even the best, most sophisticated tool in the world is useless if you have no idea how to properly deploy it.
So, we’re going to get back to basics and discuss some of the concepts that are fundamental to using Hawkeye effectively…
Starting with Volume Price Analysis, the foundation of all the Hawkeye Traders tools and indicators.
If you don’t first understand the concepts of price and volume, using Hawkeye effectively will be an uphill battle.
This is for those investors who are new to the market, or those who are experienced, but need a refresher.
Take a look at this:
Credit: The Data Visualization Catalogue
These vertical, colored bars on the chart are called “open/high/low/close” price bars, or OHLC bars.
The tick marks that you see attached to the left and right of the bars illustrate the stock’s price at market opening (left side) and the price at market close (right side).
On a down day, the right side close tick is lower than the left side open tick. On an up day, the right side close tick is higher than the left side open tick, which means that the price closed at a higher valuation than when it opened.
If the closing tick is located on the top part of the green bar, let’s say, in the top 40%, it’s considered a strong bar.
For red bars, the inverse is true. It’s considered a strong bar if the closing tick is in the lower 40% of the part of the bar.
A good way to remember this is “strong bar up” or “strong bar down,” otherwise it’s considered a weak bar.
Again, these are (OHLC) price bars.
They’re different from “candles,” which are a different type of price bar. Let’s take a look at those next.
Credit: Towards Data Science
These are candlestick price bars, or just candles in typical trader parlance.
The candle body represents the range between the open and the close, while the wicks on either end of the candle body represent the highs and lows.
The candles are colored red if the close is below the open. The candles are colored green if the close is above the open.
Although the Hawkeye tools are compatible with both OHLC bars and candlesticks, it’s important to note that the Hawkeye Volume Paintbar should only be used with OHLC bars.
Otherwise, you will inadvertently hide the true open and close of the candle.
Stay tuned for our next discussion, when we’ll explore volume and how it works in conjunction with price to form Volume Price Analysis, the foundation of Hawkeye. Until then…
