What Are Raindrop Charts?
Raindrop Charts combine price action, volume, and sentiment into a simple, powerful chart visualization. In this article, we will discuss the origin of Raindrop Charts, how to read them, some basic Raindrop patterns, and the advantages of using Raindrop charts.
Origin of Raindrop Charts
Raindrop Charts were first conceptualized by Ruslan Lagutin, CTO of TrendSpider in October 2018. They were developed as a way to illustrate price action and the passage of time along with volume while eliminating somewhat arbitrary data points like the opening and closing prices of the period.
Raindrop Charts are a proprietary type of trading chart exclusive to the TrendSpider platform. TrendSpider is an automated technical analysis trading software that helps traders make smarter, more strategic trading decisions.
How to Read Raindrop Charts
To read Raindrop Charts, you need to understand the components of each Raindrop and what they represent.
- High: The highest price of the period.
- Low: The lowest price of the period.
- Left dash: VWAP for the first half of the period.
- Right dash: VWAP for the second half of the period.
Additionally, the shape of each half of the Raindrop represents a complete volume profile for each half of the period, converted into area charts, rotated 90 degrees, and joined together to form the Raindrop.
Lastly, when the left VWAP is greater than the right VWAP, the Raindrop is red. When the right VWAP is greater than the left VWAP, the Raindrop is green. When the left and right VWAPs are equal, the Raindrop is blue.
Basic Raindrop Patterns
Raindrops, like traditional candlesticks, exhibit a variety of patterns that can provide useful information to traders and analysts. Additionally, there are specific patterns that only occur in Raindrop charts. Here are some basic Raindrop patterns:
- Bullish Raindrop: The VWAP for the second half of the period is higher than the first, representing buyers in control.
- Bearish Raindrop: The VWAP for the second half of the period is lower than the first, representing sellers in control.
- Neutral Raindrop (Blue Doji): The VWAP for the first and second halves of the period are equal, representing a “tug-of-war” between buyers and sellers. Blue Doji Raindrops may indicate a possible trend reversal, especially on a highly liquid asset. They tend to cluster in particular areas and often tend to mark tops and bottoms.
- Balloons: Balloons are formed when both the left and right VWAPs AND at least 80% of the volume are higher than 60% of the body. Balloon-shaped Raindrops indicate a strong move to the upside.
- Flip: Flips are formed when the left VWAP stands apart from the right VWAP by at least 50% of the body.
- Double Flip: Double flips are formed when more than 30% of the body is between the left and right VWAPs.
- Bearish double flips occur when there’s a green flip and then a red flip where the red flip has a right price lower than the green flip’s low.
- Bullish double flips occur when there’s a red flip and then a green flip where the green flip has a right price higher than the red flip’s high.
Advantages of Raindrop Charts
Here are some of the advantages of Raindrop Charts:
- Incorporates volume: By incorporating the VWAP and volume profile, Raindrop charts tell you a lot more about how price and volume are moving together than traditional candlestick charts. Additionally, Raindrops have a volume-weighting effect on everything, including indicators.
- Helps identify breakouts and fakeouts: Raindrop charts visually show whether buyers or sellers are in control, which allows traders to make more informed trading decisions around support and resistance levels.
- Helps identify points of market indecision: Blue Doji Raindrops may appear at times of market indecision, or when buyers and sellers are battling for control. This may indicate a possible trend reversal and can also help identify support and resistance levels.
- Provides Raindrop-specific patterns: Raindrop charts provide new chart patterns to look out for, giving traders another perspective on the market.
- Works across TrendSpider: Because the Raindrop chart was developed at TrendSpider, they work across the entire trading platform including the Market Scanner, Strategy Tester, and Alerts.
The Bottom Line
Raindrop charts are increasingly being used by traders as another tool in their analytical toolkit. They provide traders with a visual representation of the volume and price action over a specific time period, which can help identify trends, support and resistance levels, potential breakouts, and more.