Just a note. What I left out here and what is equally important is determining the strength of the trend, and that's where the reaction highs and lows and the "stairstep" pattern come in. --Db
It's also useful to keep an eye on the volume to see where it may pick up or fade with each advance/rally or pullback/selloff.
Definitely. For me, if I'm long and I see the price dropping below the last reaction high, I know that momentum is slowing. That doesn't necessarily mean that I want to exit, though if I'm trading multiple ctx, I would definitely take at least one off. The next danger signal, assuming that the price doesn't drop below the last reaction low or break the trendline, is either a failure to reach the old high, or the achievement of a new high and a failure to hang onto it (e.g., a 2B). Depending on how many ctx I was trading, I might take off another one here. The next danger signal, though these may not occur in this order, is breaking the trendline. This is not especially troublesome as price often consolidates after a nice run in preparation for a resumption of the advance. But if the trendline is broken, a new high is attempted, and that attempt fails, the probability is quite high that a trend reversal is in the works. Granted, the reversal is not confirmed until the last reaction low is taken out, but I wouldn't be hanging on to multiple contracts just because I was hoping that the trend wouldn't reverse. Buyers are now nervous, and they're far more likely to take another attempt at a new high to get out than they are to add to their positions. What is equally as important as making the most of your longs at this point is anticipating the conditions for the reversal and planning your shorts. --Db
I've found that that depends on the bar interval. I haven't found volume to be all that helpful with anything less than ten or fifteen minute charts, though others may disagree. --Db
Agree. Too short a reference and you're looking at too much volume "noise". But I look at 5 min charts too. But that's what I meant but you clarified well.
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I trade a lot of things but mostly equities and we're probably saying the same thing more or less. What I do is look at the last several volume bars to see if there is any progression - like increasing or decreasing volume over the last half hour, hour, etc. I don't just trade off one bar but will take note if it really jumps or all but disappears. PS I've enjoyed our discussion. Got to go but will check in later. Hope you're enjoying your weekend.
Probably. I really haven't looked at volume since it began declining so badly. I was wondering if I've been missing anything. --Db