Hey Joe! Does volume figure into your trading?

Discussion in 'Technical Analysis' started by Joe Ross, Jun 2, 2004.

  1. It didn’t in the past because volume was a day late and a dollar short, when trading the daily charts. But these days, where volume is live, it does count.
    We use both contract volume and tick volume as a guideline and filter for our trading.
    Here’s a simple idea that works well for indexes. Most people ignore volume as an indicator. I think it’s overlooked and I will show you here how to use it to figure out possible turns in the market. The concept is that of a volume spike.
    If you will look at just about any weekly chart of the S&P500, you will see what I'm talking about. Note the volume spikes that occur at the turning points in the market. This occurs when large numbers of contracts change hands. Usually it happens when the smaller trader gives up and sells his contracts. If enough traders do this at once and the price is right the professionals will come in and snatch up those contracts. Therefore you have this large volume that occurs right at the bottom of a decline as the market is churning. The contracts move from the weak hands (the man on the street) to the strong hands (professionals).You need to look for volume that is larger than the last 10 bars volume. This is not cast in stone but is generally a good average to go by. You might decide that 8 bars are enough. It also helps if the volume is substantially larger than the previous volume and is accompanied by a large downward move in price. I wouldn’t necessarily trade this as a stand alone indicator but use it as a general warning of a possible change in Market direction. Does this work with intraday charts? Absolutely. Volume is important.

    written & contributed by Joe Ross