TechniTrader® has developed indicators for MetaStock that are unique and new to MetaStock users. These indicators, called TechniCators™ are designed to track specific aspects of the data that comes from the markets each day.
Today we are going to discuss TT Volume Bars.
One of the most common errors I find when I am giving a personal trader's consultation to help a trader who is having difficulties with either: entries, exits, risk, whipsaws, and or other problems is the fact that most traders do not use a complete set of indicators for analyzing all of the data that comes from the market.
In order to accurately analyze the stock chart and price action for reliable entries, exits, and to choose a proper strategy and trading style for that stock chart, you must analyze far more than most traders do.
What is lacking in most toolkits for traders is adequate indicators to analyze quantity, the third set of data that comes from the market.
Quantity can be analyzed and studied in a variety of ways just as price can be analyzed as a line, histogram, oscillator, momentum, relative strength, trend, and direction. But quantity reveals far more about what is going on with price than price alone.
What price can't tell you is:
1. Which Market Participants are trading or investing in the stock. There are 8 market participants and each has their own way of buying and selling, their own agenda, timeframe, and so on. Since the market participants group together they leave invaluable "footprints" on the chart, especially in the quantity data.
Quantity can be broken down into:
1. Volume: the total number of shares traded at any given time.
2. Accumulation or distribution by large lot investors or large lot traders.
3. Flow of funds or money flow in or out of a stock by Mutual Funds, Pension Funds etc.
4. Quality of the trend based on whether it is large lot buying or small lot buying. Sustainability, and momentum are defined by quality.
5. Duration of the trend based on market participants activity. This tells you how long the run or trend will sustain and how well it will sustain in various market conditions.
6. Strength of the trend this tells you how well price will hold up during a retracement, correction, or reversal of trend.
7. Shift of Sentiment indicating a topping or bottoming action BEFORE price reverses the trend.
8. Whether it is a value-oriented buying or whether it is a speculative buying before the price moves.
9. The direction the stock is most likely to take out of a sideways action. Since stocks trend sideways 60-70% of the time, volume patterns that reveal direction are critical for earlier entries into stocks.
10. The energy behind the move. Whether it is a momentum run, velocity run, or simply volatile up and down price action.
Below is the TT Volume Indicator. This is a histogram. MetaStock comes with a volume indicator but what is different about TechniTrader(r) indicators for volume is that we have color coded them to the dominant side of price for the time period displayed. By using green bars for up days (or periods) and red bars for down days, a graphical view of what, who, and how is shown allowing for quick and easy analysis.
Chart 1
We add an Exponential Moving Average for Swing, Position, and Intraday style trading as exponential is the ideal moving average type for shorter term trading. The EMA helps speed up the analysis process allowing you to quickly see whether volume is below, at, or above its moving average.
This really helps when it comes time to choose between a dozen or more stock picks. You can compare red to green to see which is more prevalent and you can compare size of the green to the size of the red to see which has more energy. Energy in volume equates to momentum price action.
The biggest moves often have a surge of green volume a couple of days prior to the big move up.
Lower than average volume tells you a great deal about the current price action especially during bottoming and sideways patterns. By studying and comparing the bars you can see patterns that reveal how strong the sideways or bottom is and if the breakout will occur soon.
Chart 2You should also view volume bars on weekly charts as well to see how volume has behaved on a weekly bar. Each bar represents the week or 5 days of volume combined. Weekly charts can expose patterns not as easily seen in daily charts.
For some investing and trading styles, a monthly view of volume can also be a huge help in understanding price and what is going on. Often times traders are so fixated on the short term view that they forget about the long term support levels. Volume can expose bottoming and topping patterns far better than just price alone.
Chart 3There is nothing wrong with using your favorite price indicators such as MACD or Stochastic, or using Bollinger Bands for helping to see price patterns.
But remember: Volume is also just as important. AND you can use Bollinger Bands on your volume indicators to help you see the patterns better.
Trade wisely,
Martha Stokes, C.M.T.
Member of Market Technicians Association
Master Rated Technical Analyst: Decisions Unlimited, Inc.
Instructor and Developer of TechniTrader® Stock Market Courses
http://technitrader.com
MetaStock Partner
©2011 Decisions Unlimited, Inc.
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