This video shows you how to setup histogram charts in Xenith and look for possible mean reversion opportunities.
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We have a quick question from Cesar who says he’s seen us use absolute value charts in Xenith to look for possible mean reversion opportunities and asked how we can go about setting it up.
Thanks for the question Cesar, so it’s quite simple to set up in Xenith. So, the first step you do is just open up a new tab inside Xenith, and then choose the chart option.
It will open up with whatever chart you have worked on previously, so in this case you can see mine opens up as the Nasdaq futures, but you can obviously change that to whatever you want to see, whether it’s a currency pair or a commodity or an equity index or a stock doesn’t really matter it will work the same with all of them.
Right, so once you have your chart open, you are simply going to right click, so I’m not sure how to change the actual chart that you open up with, so I usually just do an add on and then I delete the first one, so it’s a long way round and I’m sure there is a quicker way but I’ll show you the way that I’ve been doing it and if you find a quicker way just let me know.
So, just right click anywhere on the chart, and then scroll down to add, and then select analysis. Now once the Insert Analysis box pops up, what you need to do is put in the instrument you want to see, in this case I’ll leave it as the Nasdaq futures, and then on the left hand side you are going to look for the very first option called “absolute change”, and make sure that is selected, and then you can go to the display tab, and from there, you want to change the Line Type from default to histogram.
Once you’ve done that you can simply click add. Now remember, I didn’t change the first chart so it simply added this one to the bottom, so you can either view it like this which I know a lot of traders prefer to do which helps them to view the absolute change in the context of where the chart is as well, because massive out-sized moves which occur at the same time where the price is at significant lows or highs obviously adds to the conviction and probability of a mean reversion so that can help, but because I already know where the charts are from looking at them throughout the day, I prefer to delete the chart and just keep the histogram.
Now, you can also play around with the various time horizons on this. For example scalper will often use the histogram to help them find better timing on their entries when moves are quite excessive on an intraday basis by looking at a few time frames of data. I prefer to keep things simple and just look at the daily and weekly changes, sometimes monthly as well to get a sense of when certain moves might exhaust.
A good example is of course something like the Nasdaq which moved sharply lower on Monday, of course due to the rotation narrative that seen rotation from growth to value, but it was also perfect timing to expect some mean reversion if you consider the sheer size of the weekly gain that the index put in last week.
It’s also helpful to use this across asset classes, for example if you are trading Gold it’s good to have a chart that tracks the absolute gain for Gold as well as the Dollar and US10Y yield, because outsized moves in the one which increases the probability of some mean reversion can help you to time those type of entries a lot better.
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