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cyberbash

239 Posts.

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17/04/18

16:27

Post #: 32507107
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Originally posted by Jako8557 ↑

Thanks PB,

Yes, I have made quite a few 'equal price weighted' Index charts, they are relatively easy, and don't require much maintenance.
Making a 'market cap' based Index is more complicated, and does require more data, and more regular maintenance.
So I stuck with equal price weighted index charts.

There is no doubt Index charts are interesting and pretty, and are good for a broad overview of a sector, other Hot Copper members also like to see them, especially when confirming that a new potentially hot sector is emerging. Sadly it is usually in hindsight though......

After a year or two following homemade index charts pretty closely, they did not really offer much of an edge....sometimes a little, but not much overall.
They did identify some sectors with increased average volumes at times, which required further investigation (so that was good), but using an Index actually clouded (diluted) the volume of individual stocks. So if it was a tight stock pickers market (as it often is), then using the Index was either of not much help directly, or actually made it more difficult to see an anomaly within the sector - which is what you are looking for (depending on how many stocks were in the Index -- mine were mostly 20 stocks in an index, so if only one stock in a sector was being supported strongly, when combined with up to 19 other stocks it dituted the price movements and volume substantially, and served to hide them, rather than identify them).
It was only when the majority of stocks in a sector began to move, then it all became really obvious, but by then the best stocks had already moved, and the reason they were all moving, was the market now looking to find value in the second or third level stocks in the sector.

To do well, you need to be ahead of the curve, and the sector index's, while pretty, did not really offer a huge advantage.

If you follow the right members and threads of Hot Copper to identify what might be the upcoming Hot Sectors. Then follow stocks within those sectors more closely, you have a better chance of getting ahead of the majority. Not all of these sectors will actually turn out to be the next Hot Sector though, so it can be a bit time consuming at times. But i found that individual stock picking within a potentially hot sector is a better way to spend your time, than building index charts that only show what an overall sector is doing.

I automated most of my index charts, so it didn't waste too much time once that was done, but I don't watch them or post them much anymore.

So all that said, yes I can offer some tips on how to spend time building an Index chart.
First you should read up on what the difference is between 'equal price weighted' and 'market cap weighted', so you know what you want. And if you still want to go ahead, and decide to use equal price weighted, then gimme a shout and I can explain further, they are not particularly complicated to make, so long as you have the data source.

cheers

Expand

Thanks for the insightful reply. I was considering making an equal price weight index chart, but I was only going to compose it of 4 of the larger/more advanced sector stocks for the reasons you described above. Did you ever try and narrow down your index and see if it helped to have less stocks in the index? I agree, I don't think it'll be a massive help but it might be helpful here and there...

Mechanically the way I've thought so far to do it (let me know what your approach would be) is to have 4 main stocks. Each days calculations would be:
- Price - Logarithmic scale. Arbitrarily set time zero as one year ago. Each day after this calculate the % value each stock moves relative to the day prior (open, close, high, low). Average the % values for open/close/high/low and plot the average value as an overall price movement for all 4 stocks.
- Volume - Each day for each share calculate the % of shares traded as a function of total SOI. Add together the % for all 4 stocks, then divide by 4. Plot this volume bar as an overall volume for all 4 stocks. Could also split the volume bar itself into 4 colours showing the relative proportion each stock contributes towards the volume.

Hopefully I've explained that well...thanks again for your input

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