There are only 2 indicator, lower study indicators, that I use. And those of you that know me, know exactly what they are. Obviously, you can see my charts and you will notice what they are. The thing that I would like to emphasize is that these indicators are volume sensitive. And reactions to volume can be gauged through comparative analysis. In my geek speak, you will compare to adjacent time frames to see the effects of a lower time frame progression. The higher time frame, is the trend. I’m not going to go over the whole concept, you can read about them in earlier issues. Indicator based trading is really fun when volatility is high. Indicator based trading is really effective when you can gauge the flow of volume properly.
Volume Flow Is NOT Consistent!!
When people read the indicators, they think the thing that is moving it, is in constant and equal flow. That is far from the truth. This is why I tell you to understand comparative analysis. I learned about volume flow at the time that the market was very volatile. Do you recall the wild fun swings of the crash from 2007-2008? Those were the fun days. It was a great time to learn about how the indicator moves. If you were really paying attention, you could see exactly how volume drops and pops correlated with price action. You would also realize how price action could follow your channels and price action patterns.
In today’s market action, if you are trying to learn how all this works, it would be more difficult. Volume has yet to compare to those good old days. If you were to try to learn it today, you would really need to pay attention to progression to understand how momentum builds up or dries up. Progression on one time frame may be bullish, but if it doesn’t affect the adjacent time frame in the same manner, it may mean that the higher time frame next to your adjacent higher time frame is actually bearish and its trend will be followed. Huh?? Again, practice, and observation. That is how you learn to be a technical trader.
Trend is real. People think everything moves at the whim of the news. Like I was trying to say in the last post, you really have to be careful about listening to the news. Case in point. The market dropped due to concerns about Greece and European economies. The next day, Intel had great news and wiped away the previous day’s loss. Where is the logic in that? European economy could blow away American imports and exports. American economy could be affected in so many levels and yet, lowly Intel, though international in nature can have an equal or greater effect to wipe away such global economic concerns?
In the technical perspective, each of the moves were technically supported by a distribution to sell to the leg start, then first touch pop with the momentum setting up the prior to reaching that leg start, an accumulation to help the pop. Technical moves are easier to understand than to try to decipher all the news and fundamentals. Why have a charting package if you don’t get how to use them?
Price action always follows trend. Volume that comes in is also subject to trend. The two are related. So if you are indicator trading or reading them for momentum. Study how its flow works before basing your trading strategy on generalizations. Understand how progression of lower time frame, affects the higher and vice versa. Don’t go in blind. Been there, done that. The next thing you have to do after figuring out how those indicators work, see how they relate to price action and then levels.