Wednesday, June 20, 2012

Volume Leading Price

MetaStock SPRS Series - Week 73 - TechniTrader® Stock Discussion for MetaStock Users - Volume Leading Price - June 18, 2012
By: Martha Stokes C.M.T.

I often talk to traders who are struggling with mediocre results or chronic small losses due to whipsaws. Although it is natural to want to blame the markets, market makers, or High Frequency Trader’s HFTS for these kinds of poor results and lost profits, but the actual culprit is a lack of Spatial Pattern Recognition Skills SPRS.

Technical Analysis is your EDGE in the markets. Most traders assume that everyone in the market, large funds to small funds, HFTs, and pros are all using technical analysis. The truth is that most of the market participants are not using technical analysis. This is the advantage, that edge that retail traders have, because by looking at a chart, you can learn to read what is going on before price moves.

CTXS is an excellent example below, and is a Cloud Industry Stock. The Cloud Industry is one of the big industries that is going to reshape the world economy over the next decade.

Chart 1

CTXS was sideways for a period of time, gapped up on HFT activity, and then corrected in May. Now it is forming a consolidation after a brief run out of the bottom. What you need to learn to see is how volume is leading price.

The TechniTrader® Volume Accumulation TTVA indicator is showing the leading volume pattern over price very strongly during the consolidation. What this means is that someone is controlling price, holding it in a tight price pattern BUT the volume moving into the stock is huge. This is quiet accumulation going on in the Dark Pools.

Soon, HFTs and pros will discover this quiet accumulation and rush in to buy the stock, moving price up.

By being able to identify a consolidation pattern under quiet accumulation, you can enter the stock with confidence and ride the run upward. The key to this type of trade is to be able to see that volume leads price.

Many traders still hold fast to the old adage that price is the most important indicator. However in our modern electronic marketplace dominated by huge share lot traders and funds, volume is now the more important indicator.

Remember that there are 3 pieces of data that come from the market:

1. Price

2. Time

3. Quantity

By learning to interpret the subtle nuances of the relationship between these data streams, and what the relationships mean in terms of who is in control of price, you as a retail trader can make higher profits by avoiding weak traders and whipsaws. You will also have a much more enjoyable trading experience.

If you can learn this one SPRS of “volume leading price” then you will find that you are making consistent profits over time, with far better picks and stronger run gains.

Trade wisely,

Martha Stokes, C.M.T.
Member of Market Technicians Association
Master Rated Technical Analyst: Decisions Unlimited, Inc.
Instructor and Developer of TechniTrader® Stock Market Courses
MetaStock Partner

©2012 Decisions Unlimited, Inc.

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