Wednesday, August 12, 2009

Simple Volume Analysis

First off I wanted to answer a question I received as far as why I set such tight stops, yes it was frustrating to get stop out for small/loss+profit today only to see the market move in my favor immediately after, I set tight stops for the simple fact that it's FED day, weird things happen, I have seen it drop off my chart in a couple of minutes. I play things most of the time super safe, however I did notice in reviewing my trades I overtraded today, didn't realize it for some reason until after the bell. But that's why I started this blog, to track my every move and thought so I can go back and analyze and see where I went wrong and make sure I don't trip over the same rock so to speak.

Anyways, to the charts, as I am studying the characteristics of volume to price movements, one of the simple things I track is primary market total volume as seen in this chart. I look for extreme readings and divergences, first take a look at the extreme low readings we have had, most have produced a market top for the VST (very short term)

We had a bullish divergence before the March lows before the rally signaling a possible market bottom, same with July another bullish divergence formed, that could have signaled that some strength was going to carry this market back up to new highs.

Now this is just a simple chart, their is much more complex charts, like up/down volume among many others that give you a little clearer picture. But this is a good entry point to start in volume analysis, as I am seeing volume is a HUGE key to picking market direction and a powerful tool once you begin to use it correctly.