Bailout

A new kind of stock-price chart

By Felix Salmon

I love Kristina Peterson’s profile of Briargate, an algorithmic prop-trading firm (it’s an anagram of “arbitrage”) which has more or less given up on trading during the middle of the day.

High-frequency strategies like Briargate’s work best when there’s maximum liquidity, and that’s definitely during the first and last hour of the trading day. So instead of babysitting their computers at noon, Briargate’s principals go for long walks, or visit their children’s schools, or go out for pizza — and don’t even notice when something like the flash crash happens. (They were at the movies at the time.)

All of which makes me wonder whether we shouldn’t be presenting intraday stock charts a little bit differently. Right now, they invariably construct the x-axis so that every given unit of time (one minute, one hour, whatever) takes up the same amount of horizontal space. Underneath that you sometimes see a volume graph which shows you the important parts of the chart to look at.

Does anybody publish charts where the x-axis has a constant volume chart along the bottom, spreading out high-volume trading periods and skipping over low-volume periods relatively quickly? Is there a way of publishing data so that every tick, or every 1,000 shares traded, takes up an identical amount of space on the x-axis? The axis could still be labeled by hour or minute, it’s just that those labels would no longer be equidistant.

I’m pretty sure that such a chart would provide an interesting and fresh perspective on how stocks move. But of course it would be hard to generate in Excel, so maybe that’s why I’ve never seen one.

Full post as published by Macroprudential on September 10, 2010 (boomark / email).