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How to use volume in your trading
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How to use volume in your trading

  #21 (permalink)
Trade with the flow
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Another trade example

Here's another one, this one will show using volume in a different way and the trade is still open so we will find out later what happened.

I went long SKX (Sketcher's, love their shoes) on a breakout of the opening range. WIth my stop under the range. It went up then pulled back and we see low volume bars marking the pullbacks. The at the top, at 11:05 there is a low volume pullback followed by HVC. I love this pattern! It means the amateurs were selling the breakout and the pro's were buying the pullback to the breakout line.

What do you think the stock will do next?

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  #22 (permalink)
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Sketcher outcome

Ok, the HVC didn't hold the decline so let's see if we can figure out why:

1 - Although Better Volume signaled HVC, it really wasn't. Look at the volume, it was very low. The reason BV picked it up is because the range was so low. But this really isn't HVC, it's LVC. THis is one reason we have to know how to read it ourselves. Sorry I missed that.

2 - On higher timeframes (this is 5min which is high compared to tick) I like to go long if price breaks above the HVC bar and short if it goes below. In this case it went below first so that would give a short bias (again, not to be traded solely on this alone).

3- Look at the HVC that capped the rally at the end of the day yesterday. My guess is pro's came in short from 3-4 yesterday.

This is what stops are for, if sketcher's goes below the OR I'll go short. It's bouncing back as I type so we'll see at the end of the day.

Ok I'm going to let you all post some charts now.

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  #23 (permalink)
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Cunparis,

I see there are 5 true options visible on your chart for this indicator.

Can you identify them for me and do you ever change them to false?

Thanks,

RJay

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  #24 (permalink)
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RJay View Post
Cunparis,

I see there are 5 true options visible on your chart for this indicator.

Can you identify them for me and do you ever change them to false?

Thanks,

RJay

I turn Low Volume & High Volume Churn to true and I set climax up, climax down, and high volume churn to false. I got the idea from Barry (the author), this is how he uses it for daytrading with tick charts. For swing charts on daily timeframe I turn everything on as it doesn't move and I have time to interpret the colors.

I have my moving average at the default (20) and the use upticks & use two bars are both set to true.

Hope that helps.

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  #25 (permalink)
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A chart for you to ponder. What do you see?

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  #26 (permalink)
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I see

I guess that this is telling me the double top was formed on lower volume. So...... indicates weakness.

Let me know if this is correct. I am new to trying to analyize volume.

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  #27 (permalink)
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You must have read the filename. I'll be more discreet next time.

Yes there is a double top, yes it's on lower volume. There is a lot more to the story. What else?

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  #28 (permalink)
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????

Hmmmm.... you got me. What am I supposed to be seeing?

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  #29 (permalink)
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Jeff Castille View Post
Hmmmm.... you got me. What am I supposed to be seeing?

I was talking about the HVC that appeared to be capping the rally. One of the things I always heard was that pro's don't chase. They enter at very specific points and exit at very specific points. It's not just "I think this is going up". That will get you killed. So we find heavy participation (volume) at key points, such as this double top.

Here's what happened next, I'm dropping down a timeframe cause it shows up better. I like to use 3 timeframes, sometimes a volume pattern will only show up on one.

Tell me what you see now?

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  #30 (permalink)
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Here's a daily chart


Just to show that these volume patterns work on any timeframe, here is a daily chart. Look at the huge volume today. That was incredible. We haven't seen more volume since January. In the volume graph you can see a white bar, that's high volume down climax. For some reason the paintbar didn't paint it white, I don't know why. Sometimes it does that, which is why it's important to be able to read the volume without an indicator. A wide body down on huge volume is easy to see right? A volume climax down bar often occurs at the start and end of a downtrend. And the same for a volume climax up bar in an uptrend. So this volume signal is telling us that the down trend is starting.

On 8/17 the HVC (blue) bar shows us pro's are buying the pullback. Then two red bars show us the trend is starting up. Unfortunately price just kind of hoovered there, most likely due to the vacation period. We almost got a couple HVC bars on top but their ranges were slightly too long (again, possibly due to the summer).

We also see bearish divergence in the indicators, but that's another thread.

PS: Jeff - those magenta dots on the LBR indicator are first crosses. It seems to work very well on the daily charts.

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