Most people use OBV as a component of Divergence/Convergence trading. How do you utilize this tool specifically?
Systems/methods only. If I trade off feelings I am usually wrong (unless I do the opposite that is!). Best Natalie
Yes, as per my post many do use in TA studies. I use OBV in conjunction with other momentum analysis tools to determine the strength and weighting of the volume on anticipatory reversal bars. OBV in and of itself is useless, unless used with other tools. Rather than divergence or convergence, OBV shows the expansion and consolidation of volume on "urgency" candles, it validates or invalidates reversal bars.
Interesting article (part one of a series) on Soros written by a person who did their post-doc thesis on this very subject. Here's a link if anyone's interested: http://www.sfomag.com/articlesdetail.asp?IssueMonthID=July&YearID=2003&ID=242 Uni
The most important thing to me is to figure out every day what the traders on the "floor" are keying off. If you trade every day and watch every tick of whatever it is you trade, you begin to get a feel for the story as it relates to what and how the market is reacting to the news. When there is no news of consequence, you see the pure market in action and WHAT the market is keying off in the absence of institutional buying/selling - in other words, when the market is in a purely technical mode. Once I know that, I arrange my screens such that the most pertinent information is on my two main screens in front of me, assuming that the info is not what I normally key off, which is always in the middle of my eight screens. The key for me is to know when my T/A is off on a given day, and to adjust accordingly. When I am on, I just let my fingers do the trading, and it is almost routine for me. It is when I am off that I try to unwind how I got the story wrong. This not only saves me the day, but often the week or month as I can see the shifts occuring. I am always aware of the cycle we are in, e.g, window dressing, option expirations, quadruple witching, earnings, etc. These things drastically affect how agressive I am in a given strategy. There is rarely one thing that the markets are keying off. It could be interest rates, MSFT, or oil, or inflation worries, or earnings, or an event or a number that day, or a story in the back of the Wall Street Journal, and sometimes stranger things like dip buyers coming in like clockwork. It could be a fundamental shift in the market, like a tax law change, or a tax loophole, etc. All these things add to the dynamic of the day/week/month and how the markets react to each of these is a clue into the fear/greed/supply/demand for a given market and helps me figure out the mode the market is in. I am a pure contrarian momentum player in my most prominent style of trading ES/NQ/QQQ/YM. When I am keying off the right things, setups within this framework give me approximately a 65:35 chance of success on the very small time scale of holding trades. Because of this edge, it is only logical that I trade often. Mathematically, this must be correct - the more of an edge you have, the more often you want to trade and get the Central Limit Theorem on your side [btw, that is why I have never understood swing trading..] Then there are the other styles that I trade that are simply taking advantage of statistical aberrations in equities. This requires almost no skill or thinking on my part, other than doing homework the night before. nitro
Hey Jai, Don't know whether you'd be willing to do it but it would be useful to see how you used MA on the Qcom trade you posted the other day. It's pretty obvious that the intra day breakout where you first established your position was confirmed by strength of volume but I am sure there is a lot more too it than that. Thanks
Hi Gazza1, My schedule will be pretty tight over the ensuing weeks, as I trade, run my business and travel for seminars. As the schedule loosens up, I will certainly make time and have lead a chat on this topic. If you look back at the chart, QCOM broke out of a three year down trend, I predetermined my entries and exits before the breakout on the daily and intraday, and I entered on the breakout. You're right, there was a pickup in volume and there was a lot more to it than that. This is where I used many of the momentum analysis tools, along with TA. During the chat on ET, I will make an online study guide available that includes animated annotations, so all of the ETrs can follow along in the chat and lesson. Addtionally, I will make similar lessons available to ETrs (for free) on the TradingScience website.