Pump Up The Volume!
“Turn it Down!” If you are a parent who has raised a teenager, you have probably uttered these words on more than one occasion in an effort to persuade your adolescent to lower the volume of their stereo. If not, you need only think back to your own youth when you likely found yourself on the receiving end of this directive from your parents.
Most parents are perfectly willing to allow their children to listen to their own music within limits – one of those being volume. When the volume becomes too great it distracts them from their activity and becomes the focus of their attention.
Most of the time we take volume for granted as long as it is within “normal” levels. However, when it become either very loud or conversely, very quiet, it gets our attention. A whisper can convey an even more powerful message than a shout depending on the context.
This analogy is useful when we are thinking in terms of the volume of equities and futures markets as well. Most of the time we can ignore the volume – it isn’t conveying anything particularly important. At other times, however, it provides very important information about what is happening within a market. Trade Tips will be presenting a brief series of articles showing how volume can be used to better understand price action and improve your trading results.
In part one we will be demonstrating how you can monitor volume levels within a given market using some tools we have developed in Ensign software. In part two we will look at how to interpret volume signals under a variety of situations (pivots, breakouts, climax tops, corrections, rallies, economic reports, etc.).
A quick and relatively simple way to get a handle on volume in any market and on any time frame is by using an alert that is based upon a standard deviation in the volume over the last ten bars. Here is how you can go about setting up this kind of study and alert if you are using Ensign.
Step One: Be sure that volume is displayed on the chart you are working with. In Ensign clicking anywhere on the chart and then typing Control-V will add volume to the chart.
Step Two: Add a Bollinger Band Study to the Volume subgraph with the settings shown on the template below. In this example we are showing a multiplier of 2 which means that volume is double the average of the last ten bars. You will need to play with this setting to find what works best in the market you are analyzing. Generally 1.6 - 2 seems to yield the best result as noted by identifying the most important pivots with the fewest false alerts.
Step Three: Add the study alert with the settings shown on the template below. You will see a small blue box appear above any volume bar where the volume exceeds the level you specify on the alert as well as an audible beep and a visual cue as well in the top right corner of the chart which will say "Volume Alert> Std. Deviation". If you need further assistance in programming this function, please contact support at Ensign Software by calling: 801-328-1382.
Here is the resulting volume study and alert shown on a daily S&P chart. The blue square is shown at the top of any volume bar where the average daily volume has exceeded a selected standard deviation of the average of the previous ten days:
You will quickly begin to note a strong correlation between pivot highs, pivot lows and breakouts with volume spikes as the above chart illustrates. The alert makes it pretty hard to ignore these important clues about market direction.
Harmonic numbers are the "Davinci Code" of trading. The numbers are derived from the Fibonacci summation series which starts with 0 and adds 1. Each succeeding number in the series adds the previous two numbers thus we have 0, 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89 to infinity. At the eight harmonic if you divide 55 by 89 you have the golden mean - .618. If you divide 89 by 55 you have 1.618.
.382 is the difference of 1.00 - .618 = .382
.618 is the golden mean (phi) and the square root of .382
.786 is the square root of .618
1.27 is the square root of 1.618 - it is also the hypotenuse of a right triangle
1.618 is difference of the square root of 4 minus .382 (2 - .382 = 1.618)
Note: You should not attempt to trade any of these patterns without a good understanding of pattern recognition, harmonic numbers and risk management. We encourage all of our subscribers and students to paper trade or set up simulated trading accounts and achieve some success before actually trading with their own risk capital.
Harmonic Edge Services
The Harmonic Edge methodology identifies high probability trade setups, then carefully controls
and eliminates risk while still leaving room for profits to accumulate.
We visually scan over 1400 charts a week looking for the best high profit "swing trade" patterns using volume, volatility and liquidity criteria. Setups are filtered with technical and fundamental analysis to bring you the very best high probability harmonic trading setups. The swing trade model has returned more than 40% per annum (using margin) over a five year period. Each of our trades has well defined entry points, trailing stops and targets. The amount at risk is always small and clearly defined.
We include scans and setups of the IBD 100.
provide a real time trading pit with in depth coverage of the S&P
500 Emini contract. Patterns
and setups are posted in advance with ongoing commentary and education
in harmonic trading.
We track the following futures
contracts on the daily and weekly charts: U.S. Long Bond, U.S. 10 Year
Note, Euro, Yen, Corn, Live Cattle, Soybeans, Wheat, Crude Oil, Heating
Oil, Gold, Silver, XAU.
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