I’ve been seeing various traders use a number of such technical indicators that appear to be similar, hence I did a bit of reading up and noted down some of the key points.
Renko vs. Point & Figure Charts
Both are very similar except for the following differences (not a comprehensive list)
- P&F charts use “X” for up moves and “O” for down moves, while Renko charts use empty/hollow rectangles (or “bricks”) for up moves and filled/black rectangles for down moves.
- P&F charts stack the columns of “X”s and “O”s while Renko charts move to the next column for every new rectangle. That makes Renko charts less compact but in a sense clearer to see.
- Box size
- The brick size for Renko charts can be a fixed number of points or based on the Average True Range (ATR). Typically P&F charts use a fixed number of points, but I don’t see why P&F cannot use ATR as well.
- P&F charts typically has a reversal rule, e.g. 3-box reversal rule, where the direction of plotting changes only after that certain amount of boxes has been reversed. That helps to filter out minor fluctuations, where minor is defined as the number of boxes that needs to be reversed before a new column can be plotted. Renko charts are more akin to having a 1-box reversal rule.
Keltner Channels vs. Bollinger Bands
- Keltner channels
- Middle Line: 20-day EMA
- Upper Line: 20-day EMA + (2 x ATR(10))
- Lower Line: 20-day EMA – (2 x ATR(10))
- Bollinger bands
- Middle Line: 20-day SMA
- Upper Line: 20-day SMA + (20-day standard deviation of price x 2)
- Lower Line: 20-day SMA – (20-day standard deviation of price x 2)
- Keltner channels are better than bollinger bands
- Keltner upper and lower lines are smoother than Bollinger Bands because ATR is less volatile compared to standard deviation.
- The use of EMA vs. SMA also means that Keltner channels are more reactive to more recent price changes.
- Donchian channels
- Upper Line: Highest high of the last x periods (originally 20-days)
- Lower Line: Lowest low of the last x periods
- Middle Line: Vertical mid-point between the upper line and the lower line
Commodity Channel Index (CCI)
- CCI = (Typical Price – 20-period SMA of TP) / (.015 x Mean Deviation)
- Typical Price (TP) = (High + Low + Close) / 3
- Mean Deviation = Sum of ABS [ TP(i) – 20-period SMA of TP ] for i = 1 to 20, then divided by 20.
- The constant of .015 scales the indicator so that most of the time the indicator would be in the range of -100 to +100. So if the current typical price is 1.5x the Mean Deviation, that would be scaled to 100.
- This is more similar to an RSI or Stochastics in determining changes in price momentum.
Rate of Change (ROC)
- ROC = [(Close – Close n periods ago) / (Close n periods ago)] * 100
- Pure momentum oscillator