One of the most sought after features in the NeuroShell Power User versions is the ability to mix timeframes on a single chart. For example, you can have an indicator based on hourly data as part of trading rules or predictions in a 15 minute chart and possibly prevent unnecessary trades when the data is noisy.
The chart below shows two different methods of using hourly data to calculate the RSI indicator on a 15 minute chart. The subgraph that contains blue and yellow dots displays the difference. We'll discuss how you can set up the indicator so it calculates correctly for your purposes.
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The blue and yellow dots display two different versions of RSI indicators created with hourly bars.
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The Setting at the Beginning of the Wizard
In the 15 minute chart for SPY, we have added two RSI indicators that use hourly bars in the calculations. The RSI blue dot indicator is calculated once an hour. The RSI yellow dot indicator is calculated every 15 minutes and repeats the same value for 4 bars. The difference is the setting that appears at the beginning of the indicator wizard.
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Let's take a closer look. When you start the indicator wizard, you are asked to "Select the indicator frequency". This setting controls how often the indicator is calculated. If you select Option A below, "Same frequency as chart", on a 15 minute chart the indicator will be calculated every 15 minutes. In our SPY chart, this is the setting we used for the yellow dot version of the RSI indicator. You'll see four yellow dots that display the same value, which is correct because the indicator is using 1 hour bars and the RSI value remains constant for the entire hour.
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Option A: Indicator frequency same as chart created the yellow dots for the RSI indicator
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Option B: Indicator frequency independent of chart produced the blue dots for RSI
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If you choose Option B for Chart Independent Frequency for 1 hour bars, the indicator will only be calculated once an hour and will be displayed like the blue dots on our Spy chart.
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Step 2: The Data Stream
In Step 2 of the Indicator Wizard you choose the data stream for the closing price used to calculate RSI. In both options the Closing Price was set to the 1 Hour Close. Why do the two indicators appear at different levels on the same bar?
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The RSI indicator calculations include a moving average. In the yellow dot version that is calculated every 15 minutes there are four duplicate values for each hour of training data included in the average. In the blue dot version, which is only calculated once an hour, there are many different values included in the average. The result can be different RSI values for the same bar.
Which one is correct? If you're are trying to include a longer term view of the market in your trading decisions, you will probably obtain more reliable information from the RSI indicator that is calculated once an hour (the blue dots). The second method of changing the frequency of the input may not make as much sense when using the RSI, however it does open a world of possibilities when using multiple input indicators like arithmetic and rule indicators where you can compute, compare and contrast values from different time frames. In the end, the decision is up to you.
The Prediction and Trading Strategy Wizards include the same chart independent frequency options.
