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Post From: Support for Dollar Bars

[2019-08-31 04:03:12]
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User992529 - Posts: 25
With all due respect, this is not equivalent to simple volume bars. For securities which have very big swings, say price goes 10.00 to 100.00 at $1000 multiplier, it's not the same to buy 20 contracts at 10.00 as buying 20 contracts at 100.00 (usually reflected in the updated margin requirements). Same for stocks, if you have a fixed amount of money and the price swings from $7 to $70 then with the same amount of money you can only buy 1/10 of the same shares, which skewes a normal volume bar showing apparent "less activity" (1/10th of the volume) inducing one to falsely conclude that the trend ($7 -> $70) has ended already whereas actually there's continous stream of fresh dollars as prices go up.

Only when price swings are small - only then are dollar bars and volume bars approximately equivalent.

Example1: If one computes the number of volume bars per day on E-mini S&P 500 futures it will vary greatly over the years. Whereas the number of dollar bars / day is actually quite constant plateau / slowly increasing since 2008, whereas the number of volume bars / day would show a steady *decline* since 2012 which is plain wrong - market participants are not trading "less" in terms of amount of money flowing through the market.

Example2: Often times the number of outstanding shares vary for a security due to corporate actions. Even after adjusting for splits and reverse splits, there are other actions which are not adjusted for eg. share buybacks (quite common since, yes, 2008). Dollar bars are robust in light of this.

Example3: Prices are not IID and require normalization (log-returns). When using dollar bar volume this is closer to IID.

The quoted link from User212764 is from the same source I have read as well (yes, there's a book about it that came out very recently), and yes you won't find it yet in other charting programs.

Note: This can be extended to Cumulative Delta Bars as well to have Cumulative Dollar Delta Bars and other related studies (RVOL).
Also, when I'm talking about "dollar" bars it's just shortcut for the underlying currency of the security. Converting to dollars would pose additional complexity which would not offset it's benefits, so no actual FX conversion to dollars is neeeded.