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*The Universal Swing Analysis Tool download is only available for TradeStation and eSignal subscribers.
The Arps Swing Analysis Tool is a “Swiss army knife” tool for displaying and analyzing price swings of different magnitudes. This tool generates a series of zigzag lines connecting successive swing highs and swing lows. Accordingly, we are able to filter out the random noise in price fluctuations and focus our attention on the magnitude and speed of the up moves and down moves of price and their relationships to one another.
As well as plotting the basic zigzag line, this tool has the additional capability of displaying the following information about the price swings:
- The magnitude of each swing, in points
- The ratio of the magnitude of each swing to that of the preceding swing (swing ratios)
- The longer-term trend direction
- Retracement support/resistance levels for the current swing as well as for previous swings
- The swing reversal price, that is, the price to which a current swing will have to reverse to constitute a reversal of swing direction.
The usefulness of each of these functionalities is explained below.
The basic Arps Swing Analysis Tool connects alternate swing highs and swing lows using a proprietary pattern-recognition algorithm that is universally applicable to all charts on any time frame. The size of the swings to be recognized is controlled by a User Input, “Sensitivity” , which works like a volume control on a radio. A Sensitivity value of 1 will display swings of the smallest magnitude, while a Sensitivity of 10 will display only very major swings. Typically, to display roughly 5 – 8 swings in a chart window, a Sensitivity value of around 3 to 5 will work with charts in any price range.
The most recent swing leg on the chart connects the highest high/lowest low with the last confirmed previous swing high/low. As you follow this line in real time you will see that it changes as new highs/lows are reached, until it is finally confirmed as a turning point by accomplishing the required reversal amount.
The Swing Analysis Tool is one of the most important tools in your Arps Crown Jewels tool kit . Learning to use it effectively will make mastering and understanding the market moves much easier. Running the tool more than once on the same chart with different Sensitivity settings will show the interrelationship between swings of different magnitudes.
When Show Trend Color is set to “True”, the Swing Analysis Tool changes color when the long-term trend changes from Up to Down. A long-term trend change from UP to DOWN occurs when price breaks below the previous pivot low. A trend change from DOWN to UP occurs when price breaks above the previous pivot high.
When Show Reversal Point is set to “True”, the Swing Analysis Tool displays two dots on the last bar of the chart. The dot in the opposite direction of the current swing indicates the price at which, if reached, the swing line will reverse direction. The dot in the same direction as the current swing indicates the price at which, if the existing trend reversed, the trend would reverse back into the original direction.
When Show Swing Length is set to “True”, the Swing Analysis Tool displays a set of numbers representing the number of points in each successive swing. For the current swing, this value will increase every time the swing length increases. Show Swing Length is a very useful feature which allows the user to see recent swing amplitudes and make a judgment about a follow-through of similar-sized swings into the future.
When Show Swing Ratios is set to “True”, the Swing Analysis Tool automatically connects adjacent peaks with a straight line and adjacent valleys with a straight line. It then displays on this line the ratio of the vertical lengths of two swings leading from the first peak/valley to the second peak/valley. This number represents the actual retracement ratio of the current swing to the previous swing in the opposite direction. As more fully described in the work by Larry Pesavento, these Swing Ratios frequently occur at common Fibonacci values, and thus can be useful in recognizing and predicting the harmonic relationships from one price swing to the next.
