Price Performance indicator [For MarkD]

DoctorT

Dear MarkD,

You said that, for comparing two stocks (e.g., two semiconductors: ADM and TXN), the “Price Performance” indicator is easier to use. I have questions.

(1) To create the chart, which of the two stocks symbol do I use?

(2) If I wanted the “Price Performance” indicator to reflect the results for the last three months, the chart’s length should be three months. Am I right?

(3) What symbol(s) do I use w/ the “Price Performance” indicator? My guess is the symbols for the two stocks separated by a colon (e.g., ADM:TXN). Am I right?

(4) Using ADM:TXN, if the % shown is positive (above the zero line) ADM did better than TXN and if the % shown is negative (below the zero line) ADM did worse than TXN. Am I right?

(5) On the other hand, reversing the symbols, using TXN:ADM, the results would be reversed. Am I right?

(6) So the order is not important. Am I right?

(7) Do I add an overlay? Since there is a zero line, my guess is no. Am I right?

Thank you!

Dr. T

markd

Well, in a per cent performance ratio, the second symbol is the base, or the standard that you want to compare things against. It is the zero line in the indicator window. The first symbol is what you want to compare to the standard- did it do better or worse than the standard. That is the RS line that wanders above and/or below zero.

Note that the ratio does not tell you what the standard itself did. It only tells you what the first symbol did in comparison to the standard.

So, for instance, IBM:$SPX is currently -16.88% on a 9 month daily chart. That doesn't tell you whether IBM went up or down, or whether $SPX went up or down, it only says, whatever $SPX did, IBM did 17% worse versus 9 months ago. In the Price Performance indicator, the zero line represents what $SPX did and the line represents what IBM did compared to $SPX. If you need to know what $SPX by itself actually did, you have to look at the $SPX chart.


(Note: all the preceding refers to the Price Performance indicator that you choose from the indicator list, and put above or below a symbol's chart. I am not talking about a chart of a ratio that you can enter in the "Symbol" window in the upper left corner, e.g. ABC:XYZ.)



So, to answer your questions:

1 which symbols to compare: I usually want to compare an individual stock symbol to the index for its industry (e.g. IBM:$DJUSDV) , or to its sector (IBM:XLK) or a market index (IBM:$SPX). If you want to compare symbols that belong to same group, I think the easiest to understand method is to compare each to the same index. The symbol with the better per cent reading is doing better in the selected look back period. So you would have one chart per symbol, with the Price Performance indicator for the index you are using, e.g. $SYMBOL:$SPX

2 time frame - yes, for per cent price performance ratios, the values reflect the length of the chart.

3 which symbols - you can also compare two stocks directly - the second symbol is the base, represented by the zero line; the wavy line tells you how the first stock is doing compared to the second.

4 does the order matter - just two different ways of looking at the same thing - each would be the inverse image of each other.

5 add an overlay - you can - for instance a moving average.

DoctorT

Dear MarkD,

Thank you for your reply!

Regarding the symbols used, I tried several combinations.

(1) I tried IBM for the main chart and IBM:$SPX for the indicator. The indicator’s value was minus 10.25

(2) Then, I tried $SPX for the main chart and IBM:$SPX for the indicator. The indicator’s value was minus 10.48

(3) Then, I tried IBM:$SPX for the main chart and IBM:$SPX for the indicator The indicator’s value was minus 10.22

(4) Finally, I tried ABX (a gold stock that gapped up significantly) for the main chart and IBM:$SPX for the indicator The indicator’s value was minus 10.25

Thus, it appears that (except for minor discrepancies that I don’t understand) the symbols used for the main chart are independent of the symbols used for the indicator.

Do you agree?

Dr. T

DoctorT

Dear MarkD,

After further testing, the minor discrepancies in the indicator's values appear to be due to the length of the chart. Using a "fixed length" (e.g.. 3 months) rather than "fill the chart" shows no discrepancies.

Dr. T

markd

In general, indicators derive their data from the symbol in the main chart. However, if the indicator itself takes a symbol, or pair of symbols, then the indicator will be calculated from data for the specified symbols.

For instance, suppose you believe the environment for stocks is better when the $SPX is outperforming long bonds (TLT). You might add the Price-Performance indicator to your default chart style for stocks with $SPX:TLT in the parameter window, even though neither symbol is a stock.

DoctorT

Dear MarkD,

Thank you for your reply!

No longer confused.

By the way, did you note my posting about the minor discrepancies? They were related to the length of the chart (fixed period vs. fill the chart)

Dr. T

markd

Yes, I got that.