There are many different types of charts like Lines, Bars, Candles, Heikin Ashi, etc, that help the traders to track the movements in price actions but these often fail to factor in the trading volume. As a result, the traders are left with no other choice but to use a secondary sub-chart or an indicator that is not granular and detailed. Raindrop charts resolve this inefficiency by combining the price and volume data into a single image to render the market data.
In this document, we will explore the 11 steps that the TrendSpider system follows to render Raindrops.
Let’s get started 🚀
Step 1: Select the period on which you want to render your Raindrop chart, for example- 60 minutes, and then select the first period i.e., Mon 08 Oct 09:30 - 10:30 am EST.
Step 2: The second half of the candle's period (i.e., the last 30 minutes of a 60min. candle) is collected and then a Volume at Price histogram for this candle is built using the most granular data available, such as 1-minute candles or tick data).
Step 3: The Volume at Price histogram is rotated by 90 degrees (minding direction of a price axis).
Step 4: This histogram is re-painted as an Area chart. During the final render, this Area chart will become the right-side piece of the Raindrop.
Step 5: The instructions from Step 2 to Step 4 are repeated once again to render the first half of a drop’s period i.e. the left side piece of the Raindrop.
Step 6: The left and right pieces are merged together to develop one Raindrop.
Step 7: A mass center point is plotted on a price level. This is the same as the volume-weighted price.
Step 8: A vertical line is plotted to illustrate the high/low range of a drop, indicating the price range.
Step 9: The dash lines are plotted on both the left and right sides, each of them illustrating a volume-weighted Average Price for the respective half-period.
Step 10: Each Raindrop is colored depending on the relative position of the Left and Right volume-weighted average prices.
| COLOR | RELATIVE POSITION | SENTIMENT |
|---|---|---|
| Red | Raindrops where the Left volume-weighted average price is greater than the Right VWAP price | Bearish Raindrop |
| Green | Raindrops where the Right volume-weighted average price is greater than the Left VWAP price | Bullish Raindrop |
| Blue | Raindrops where both the Left VWAP price and Right VWAP prices are equal | Neutral Raindrop |
Step 11: The entire process is repeated for the rest of the periods until the Raindrop chart is complete.