In this issue:
How to Find, Track, and Trade with the Smart Money: The Critical Nature of Volume - Part One
Contributed by Jeffrey A. Kilian, Chief Market Strategist and Founder of The Inside Technician
As the market would have it, most participants are wrong in their trading decisions and therefore lose money when they invest or trade. We (as professionals who work in the business every day) know that even though what most dedicated people do is correct.......sometimes they miss the critical ingredient known as "volume".
Volume is the catalyst behind the most explosive and profitable moves in trading any instrument within any market place, and to this day still remains the number one factor that determines the probabilities of future price directional price movement. Volume is the number of shares or contracts traded over a calculated period of time. The result of those volume numbers must then be used to determine the current and future Supply and Demand ratio of what we are analyzing.
A professional trader will focus his or her attention on the Smart Money Volume. This volume is the most important type of volume. It is created by the people who actually move The US Markets and more importantly, The S&P 500 E-Mini futures from one level to another. These are the heavy market participants including off shore hedge funds, US based institutions, major market makers along with specialists on the trading floor who will orchestrate the mechanics behind the new price move, before the general public is aware of what is about to happen.
The effect of what the Smart Money does now creates a new level of supply or demand that was previously non-existent.
Where the ratio of supply and demand changes, so do the opportunities to invest or trade in anticipation to make money (whether long or short). However, without a sufficient amount of accumulated volume incorporated into the analysis of our trading decisions, we leave a reward to risk ratio on the table that is unacceptable. Let's examine the various scenarios where volume, especially a near historical volume spike or accumulated volume levels, plays a critical role in the end result of being on the right side of the markets and ultimately, a winning or losing position. Understanding that our US Markets are highly correlated, and that we must know the current state of our Markets, we begin with a chart of the Dow Jones Industrial Average.
The Basic Scenarios of Volumes True Colors
Critical Volume Levels Relative to Key Indicator Formations Provide the Confirmation
As traders we have a clear choice in front of us to either choose to trade the candidates that have significantly higher volume levels or not. In choosing average volume level candidates, the statistics will quickly point to substandard trading results. This is a direct result of a lack of serious interest in the security or futures contract for the simple reason there is no real Smart Money buying behind it. No professional trader would make a valid risk to reward calculation before a trade is made without including volume as a serious portion of that equation.
The MACD is one of the best indicators to analyze and make trading decisions because of its inherent ability to confirm the trend has now officially changed from one direction to another. Although at times it may lag price movement, its most powerful attribute is the confirmation it will provide us when prices achieve a new pivot point high or low or even a new base formation, and then move up or down from there into a new direction. This provides the confirmation that the probabilities of a new trend are present and we need to start paying serious attention to the trade on our watch list.
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How can I backup my formulas (Indicators, Experts, Explorations...)?
Contributed by MetaStock Support
As you know, backing up all of your work is very important (especially on a computer). You can backup your formulas, indicators, experts, and explorations in MetaStock with a few simple steps. Here's how:
Analyzing Trading Systems
Contributed by Breakaway Training Solutions
When developing a system, one of the best ways to objectively review the results of the system is to test it over a large number of securities. In this two minute video, join Kevin Nelson as he shows you how analyze trading system results.
For more MetaStock training, make sure to visit Breakaway Training Solutions at www.learnmetastock.com or email Breakaway Training Solutions at firstname.lastname@example.org.
About Kevin Nelson
Kevin Nelson is the founder of Breakaway Training Solutions, Inc. He has spent the last 17 years becoming an expert on MetaStock software and a serious student of technical analysis while working for MetaStock. Prior to joining MetaStock in 1993, Kevin was a stockbroker for a well-known NYSE firm. In his role as Sales Manager at MetaStock, Kevin interacted extensively with MetaStock customers via phone, webinars, and public appearances. His experiences while working at MetaStock have enabled him to gain a keen understanding of the needs of technical analysts worldwide. While with MetaStock, Mr. Nelson was a featured presenter for four years. During this time, he traveled the U.S. introducing the MetaStock program to thousands of people and teaching them how to use its many features. His easy-to-understand approach is considered by many to be the best in the industry. ©Breakaway Training Solutions, Inc. 2012
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