Forex Collection Euronis
 
 
 

How to trade forex using volume

How to trade forex using volume

The new High new Low ratio is a technical indicator that is very simple. It measures the number of securities trading on the New York Stock Exchange (.

How to Day Trade Using the Gann Square

The trading concepts used by William Delbert Gann or W.D. Gann as he is fondly called is a name in the financial markets that instantly brings int.

Why Do Technical Indicators Fail?

False Signals with Technical Indicators We have discussed many technical indicators on the Tradingsim blog. We have gone through many trading signals .

How to use the Coppock Curve with other Indicators

Coppock Curve Edwin Sedge Coppock, an economist by profession developed the Coppock Curve in 1965, which is a momentum indicator to identify long-term.

5 Profitable Trading Strategies Using the MACD

Are you an indicator trader? If yes, then you will enjoy reading about one of the most widely used trading tools – the moving average convergence di.

Alligator Indicator versus the Triple EMA

If you are a fan of trading with moving averages and unfamiliar with the alligator indicator, get ready for a pleasant surprise. In this article, .

5 Trading Strategies Using the Relative Vigor Index

What is the Relative Vigor Index? The Relative Vigor Index (RVI or RVGI) is a technical indicator, which anticipates changes in market trends. Many .

5 Ways the True Strength Index Keeps you in Winning Trades

The True Strength Index (TSI) is a technical indicator that was developed by William Blau in the early 1990’s. While there are many applications for.

TRIX – Standard Momentum Oscillator or Something More?

What is the TRIX indicator? The TRIX indicator is a momentum oscillator, which assists traders by identifying trending markets and price reversals. Th.

3 Trading Indicators to Combine with the Klinger Oscillator

What is the Klinger Volume Oscillator? The Klinger Volume Oscillator (KVO or KO) is a volume-based indicator, which assists traders to identify a long.

7 Reasons Day Traders Love the VWAP

Learn How to Day Trade with the VWAP - Video Before we dive into the 7 reasons day traders love the VWAP, let's first take a look at this short.

Tricks You Can Use to Successfully Day Trade with the Williams %R Indicator

If you are interested in short-term trading such as day trading based on technical analysis, then you would have probably heard about the Williams %R .

Ease of Movement Indicator (EMV) - The Best Way to Interpret Price Action

What is the Ease of Movement Indicator? The Ease of Movement (EMV) is an oscillator, which analyzes the relationship between price and trading volume.

4 Tips for How to Trade Leveraged ETFs with the Directional Movement Index

Just like regular exchange traded funds, a leveraged ETF can get you exposure to a particular sector, but as the name suggests, it uses built in lever.

4 Simple Ways to Trade with the Volume Weighted Moving Average (VWMA)

As stated in its name, the volume weighted moving average (VWMA) is similar to the simple moving average; however, the VWMA places more emphasis on th.

Ichimoku Cloud Breakout Trading Strategy – it's not as complicated as it looks

What is the Ichimoku Cloud? The Ichimoku Cloud, also known as Ichimoku Kino Hyo is a technical indicator, which consists of five moving averages and a.

How to Day Trade with the Elder's Force Index

Overview of Elder's Force Index (EFI) You can never call Alexander Elder a humble guy as he decided that the best name for his indicator would be that.

Net Volume Indicator - Should we Care?

I quite frequently perform research on technical indicators and to be honest, net volume never peaked my interest. Therefore, I have decided to e.

How to Trade using the Choppiness Index Indicator

Wouldn't we all love to know when a stock is trending and when it is in flat territory? Close your eyes for a second and imagine a world where you.

5 Examples of Keltner Channels versus Bollinger Bands

I am a self-proclaimed ATR fanatic, yet I have not explored Keltner Channels. The Keltner Channel is a lagging on-chart indicator that uses a combin.

Top 4 Awesome Oscillator Day Trading Strategies

I don't know about you, but what was Bill Williams thinking when he came up with the name awesome oscillator? With names floating around as complex.

4 Strategies for How to Use the Volume Oscillator

Fans of the Tradingsim blog know that I am big on volume. Volume is probably one of the oldest off chart technical indicators you will find in techn.

How to Use the Average True Range Indicator

http://alton-hill-jr.wistia.com/medias/09wm0pdl5s?embedType=seo&videoFoam=true&videoWidth=640 Story Highlights The average true range (ATR)?.

How to Trade with the Money Flow Index

If you have been day trading with price action and volume - two of our favorite tools - then the Money Flow Index (MFI) indicator would not feel alien.

Tick Volume - Technical Analysis Indicator

Tick Volume Definition Tick volume is measuring every trade whether up or down and the volume that accompanies those trades for a given time period. I.

How to Day Trade with the Commodity Channel Index (CCI)

Commodity Channel Index Definition The commodity channel index (CCI) is an oscillator used to identify cyclical trends in a security. It gained its na.

How to Trade with the Tick Index - 2 Simple Strategies

Many of the technical indicators discussed on the Tradingsim blog deal with assessing a particular stock or ETF. However, in this article we will cove.

Glossary of Technical Analysis Terms

Technical analysis is a means of being secure as a trader in the stock market. It provides the discipline on how to be able to predict movement in pri.

3 Simple Price Oscillator Trading Strategies

Price Oscillator Definition The price oscillator displays the difference of two moving averages in either points or in percentages. This technical .

Random Walk Index - Technical Analysis Indicator

Random Walk Index Definition The random walk index (RWI) is a technical indicator that attempts to determine if a stock's price movement is random or .

3 Ways to Use a Displaced Moving Average (DMA) in Addition to Your Trading Strategy

What is a Displaced Moving Average? As you have probably noticed, the name “displaced moving average” pretty much contains the answer to this ques.

4 Simple Volume Trading Strategies

Why is Volume Important? Volume analysis is the technique of assessing the health of a trend, based on volume activity. Volume is one of the ol.

Broad Market Indicators for Day Trading

Day Trading Indicators Day trading on any timeframe chart requires the knowledge of how the general market is behaving. You want to make sure that .

Why Professional Traders Prefer Using the Exponential Moving Average

Technical analysis boils down to predicting the future directional movement by studying past market behavior and you would not likely find a better wa.

How to Use Trendlines with the Elliott Wave Pattern

Trend Lines Definition Trend lines are one of the oldest technical indicators. Trend lines are used to identify and confirm existing price trends. The.

4 Simple Slow Stochastics Trading Strategies

Slow Stochastic Definition The slow stochastic indicator is a price oscillator that compares a security's closing price over "n" range. The most commo.

2 Simple Fibonacci Trading Strategies

0, 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144, 233, 377…do these numbers look familiar to you? Not really, right? If not, then you definitely need t.

Trade Volume Index (TVI) - Technical Indicator

Trade Volume Index Definition The trade volume index (TVI) detects whether a security is being bought or sold based on tick data. The TVI provides .

Best Day Trading Chart Indicators

http://alton-hill-jr.wistia.com/medias/q2frsq0p02?embedType=async&videoFoam=true&videoWidth=640 When you are just starting to take baby steps i.

Level II Quotes - Primary Tool for Active Traders

Level II Quotes The Level II quote window provides the data for pending orders in the market. It displays the size of the best bid and offers with the.

5 Reasons Tick Charts Complicate Trading

Most day traders have a love or hate relationship with tick charts. Meaning, either you cannot trade without the tick data, or you absolutely despise .

Tape Reading (Time and Sales Window)

Reading the tape is one of the essential indicators when active trading. Many traders know about the hundreds of indicators readily available on mos.

4 Simple Volume Trading Strategies

3 Simple Strategies for How to Use the New Highs/Lows Ratio when Day Trading

How to Day Trade Using the Gann Square

Why Do Technical Indicators Fail?

How to use the Coppock Curve with other Indicators

5 Profitable Trading Strategies Using the MACD

Alligator Indicator versus the Triple EMA

5 Trading Strategies Using the Relative Vigor Index

5 Ways the True Strength Index Keeps you in Winning Trades

TRIX – Standard Momentum Oscillator or Something More?

3 Trading Indicators to Combine with the Klinger Oscillator

7 Reasons Day Traders Love the VWAP

Tricks You Can Use to Successfully Day Trade with the Williams %R Indicator

Ease of Movement Indicator (EMV) - The Best Way to Interpret Price Action

4 Tips for How to Trade Leveraged ETFs with the Directional Movement Index

4 Simple Ways to Trade with the Volume Weighted Moving Average (VWMA)

Ichimoku Cloud Breakout Trading Strategy – it's not as complicated as it looks

How to Day Trade with the Elder's Force Index

Net Volume Indicator - Should we Care?

How to Trade using the Choppiness Index Indicator

5 Examples of Keltner Channels versus Bollinger Bands

Top 4 Awesome Oscillator Day Trading Strategies

4 Strategies for How to Use the Volume Oscillator

How to Use the Average True Range Indicator

How to Trade with the Money Flow Index

Tick Volume - Technical Analysis Indicator

How to Day Trade with the Commodity Channel Index (CCI)

How to Trade with the Tick Index - 2 Simple Strategies

Glossary of Technical Analysis Terms

3 Simple Price Oscillator Trading Strategies

Random Walk Index - Technical Analysis Indicator

3 Ways to Use a Displaced Moving Average (DMA) in Addition to Your Trading Strategy

4 Simple Volume Trading Strategies

Broad Market Indicators for Day Trading

Why Professional Traders Prefer Using the Exponential Moving Average

How to Use Trendlines with the Elliott Wave Pattern

4 Simple Slow Stochastics Trading Strategies

2 Simple Fibonacci Trading Strategies

Trade Volume Index (TVI) - Technical Indicator

Best Day Trading Chart Indicators

Level II Quotes - Primary Tool for Active Traders

5 Reasons Tick Charts Complicate Trading

Tape Reading (Time and Sales Window)

Why is Volume Important?

Volume analysis is the technique of assessing the health of a trend, based on volume activity. Volume is one of the oldest day trading indicators in the market. I would dare to say the volume indicator is the most popular indicator used by market technicians as well. Trading platforms may not have a particular indicator; however, I have yet to find a platform that does not have volume.

Free Day Trading eBook: Download the book to learn winning strategies that will improve your day trading results. The book has over 10,000 words of jam packed knowledge. Get your copy today!

In addition to technicians, market fundamentalist also take notice to the number of shares traded for a given security.

Bottom line, the volume indicator is one of the simplest methods for observing the buying and selling activity of a stock at key levels. The tricky part is volume can provide conflicting messages for the same setup. Your ability to assess what the volume is telling you in conjunction with price action can be a deciding factor for your ability to turn a profit in the market.

In this article, we will cover how to assess the volume indicator to help us determine the market's intentions across four common setups:

Strategy 1 - Breakouts and Volume

Breakouts and Volume

Traders will often look for breaks of support and resistance to enter positions. For those fans of the Tradingsim blog, you know that I exclusively trade breakouts in the morning of each session. There are two key components to confirm a breakout: (1) price and (2) volume. When stocks break critical levels without volume, you should consider the breakout suspect and prime for a reversal off the highs/lows.

The below chart is of Netflix on a 5-minute time interval. You will notice that Netflix was up

15% throughout the day after a significant gap up. Can you tell me what happened to Netflix after the breakout of the early 2015 swing high?

Breakout of Swing High

The interesting thing about the Netflix chart is that the stock never made a new high after the first 5-minute bar.

NFLX - Flat for the day

This is a prime example where a stock may have broken a high from a few weeks ago, but is unable to break the high for the current day. As day traders, you want to wait until the high of the day is broken with volume.

A key point for you is that every swing high does not need to exceed the previous swing high with more volume. I used to obsess over this and if I didn't see more volume I would walk away from the trade. Looking at the chart of Netflix above, do you honestly think the stock will exceed the first 5-minute bar with increased volume? Of course not!

While this charting example did not include a break of the daily high, when you look for stocks that are breaking highs, just look for heavy volume. Please don't beat yourself up because the 9:35 bar had 150,000 shares traded and the break of the high at 10:10 am only had 132,000.

Now if you see a break of a high with 50% or 70% less volume, this is another story. Again, if we are within the margins, please do not beat yourself up over a few thousand shares.

In a perfect world, the volume would expand on the breakout and allow you to eat most of the gains on the impulsive move higher. Below is an example of this scenario.

Let's test to see if you are picking up the concepts of breakouts with volume. Take a look at the below chart without scrolling too far and tell me if the stock will continue in the direction of the trend or reverse?

Breakdown or not?

Come on, don't cheat!

The answer to my question - you have no idea if the stock will have a valid breakout. From the chart, you could see that the stock had nice down volume and only one green candle before the breakdown took place. This is where experience and money management come into play, because you have to take a chance on the trade.

You would have known you were in a winner once you saw the volume pickup on the breakdown as illustrated in the chart and the price action began to break down with ease.

For those that follow the blog, you know that I like to enter the position on a new daily high with increased volume. You will need to place your stops slightly below the high to ensure you are not caught in a trap. This strategy works for both long and short positions. The key again, is looking for the expansion in volume prior to entering the trade.

In Summary

  1. The stock has volatile price action with the majority of the candle color mirroring the direction of the primary trend (i.e. red candles for a breakdown and green candles for a breakout).
  2. On the breakout volume should pickup
  3. The price action after the breakout should move swiftly in your favor

Strategy 2 - Trending Stocks and Volume

When a stock is moving higher in a stair-step approach, you will want to see volume increase on each successive high and decrease on each pullback. The underlying message is that there is more positive volume as the stock is moving higher, thus confirming the health of the trend.

This sort of confirmation in the volume activity is usually a result of a stock in an impulsive phase of a trend.

The volume increase in the direction of the primary trend is something you will generally see as stocks progress throughout the day. You will see the strong move into the 10 am time frame, a consolidation period and then acceleration from noon until the close.

For this strategy, you will want to wait for the trade to develop in the morning and look to take a position after 11 am. For those that follow the blog, you know that I do not trade in the afternoon; however, this doesn't mean you can't figure it out.

As the stock moves in your favor, you should continuously monitor the volume activity to see if the move is in jeopardy of reversing. The speed of this setup is much slower versus the other strategies discussed in this article; however, the difficulty reveals itself in the increased number of false moves, which are commonplace in the afternoon.

Think I'm kidding about false breakouts, let me show you a couple.

These charts are just a sample of what happens far too often when it comes to afternoon trading. So, how do you find the stocks that will trend all day? After many years of trading, I can tell you I honestly don't know.

In Summary

  1. Look for volume to push the stock in the direction of the primary trend
  2. You need to be prepared to hold a stock for multiple hours in order to reap the real rewards
  3. Once you figure out how to identify the stocks that will trend all day prior to 10 am, please shoot me an email
  4. Instead of using volume to predict which stocks will trend, simply use volume as an indicator that keeps you in a winning position

Strategy 3 - Volume Spikes

Volume spikes are often the result of news driven events. It occurs when there is an increase of 500% or more in volume over the recent volume average. This volume spike will often lead to sharp reversals, since the moves are unsustainable due to the imbalance of supply and demand. Trading counter to volume spikes can be very profitable, but it requires enormous skill and mastery of volume analysis.

These volume spikes can also be an opportunity for you as a trader to take a counter move position. You really need to know what you are doing if you are going to trade volume spikes. The action is swift and you have to keep your stops tight, but if you time it right, you can capture some nice gains.

Let's walk through a few volume spike examples, which resulted in a reversal off the spike high or low.

In the below example we will cover the stock Zulily. The stock had a significant gap up from $13.20 to almost $16.

Volume Spike Reversal

Notice how the stock never made a new high even though the volume and price action was present. This is a key sign that the bears are in control. For this setup, you will want to focus on the following key items:

In Summary

  1. The high or low of the first candle is not breached
  2. The first candle has significant volume
  3. The subsequent heavy volume events further establish the reversal in trend from the initial spike at the open
  4. Place your stops directly above the high or low of the first candle

Volume Spikes with Long Wicks

The other setup with volume spikes are candlesticks with extremely long wicks. In this scenario, stocks will often times retest the low or high of the spike. As a trader, you can take a position in the direction of the primary trend, after the stock has had a nice retreat from the initial volume and price spike.

Below is an example from a 5-minute chart of the stock Depomed, ticker DEPO. You will notice how the stock had a significant gap down and then recovered nicely. Once the recovery began to flat line and the volume dried up, you will want to establish a short position.

Let's take another look at a long wick setup. The below chart is of Frontier Communications, ticker FTR with a long wick down. The stock then recovered and went flat, which was an excellent time to enter a short position.

Another Long Wick

In Summary

  1. Identify a high volume gap with a long candlestick on the first bar
  2. Wait for the stock to eat into the morning gap and volume to drop off
  3. Take a position in the direction of the primary trend with a price target of the low or high of the wick

Strategy 4 - Trading the Failed Breakout

Trading the Failed Breakout

I would be remiss if I didn't touch on the topic of failed breakouts. As a day trader that specializes in early morning breakouts, I have my fair share of trades that just don't work out. So, how do you know when a trade is failing? Simple answer - you can see the warning signs in the volume.

Let's dig into the charts a bit.

False Breakout 1

Above is the chart of Amazon and you can see the stock attempted to breakout in the first hour of trading. Notice how the volume on the breakout attempt was less than stellar. As a trader, you shouldn't be surprised when the stock begins to float sideways with no real purpose. While this would have been a bad trade, because your money is idle, it's still much better than what I'm getting ready to show you next.

False Breakout 2

The above example of ESPR would drive me crazy 6 years ago. Notice how the volume dries up as the stock attempts to make a lower low on the day. The key for you as a trader to get out is the price action begins to chop sideways for a number of candles. When you sit in a stock hoping things will go your way, you could just make a donation to charity. At least the money will go to a worthy cause.

In Summary

  1. Breakouts fail quite often
  2. If the volume dries up on the breakout, look to get out within a few candles if things don't turnaround
  3. If you want to play the reversal, wait a few candles to see if the peak holds and enter a trade counter to the morning gap
  4. You can use the peak of the first candlestick as a logical point to exit the trade

In Conclusion

The strategies discussed in this article can be used with any stock and on any time frame. The most important point to remember is you want to see volume expand in the direction of your trade. Keep this in the back of your mind and you will do just fine.

Let’s Improve Your Trading Performance

Tradingsim accelerates the steep learning curve of becoming a consistently profitable trader by allowing you to replay the market as if you were trading live today, for any day from the last 2 years – it’s really a trading time machine.

To see how Tradingsim can help improve your bottom-line numbers, please visit our homepage.

Brokers | VPS | Signals | Articles