Friday, November 28, 2014

Volume Leads Price

Use Technical Analysis To Identify Patterns
I often talk to traders who are struggling with mediocre results or chronic small losses due to whipsaws. Although it is natural to think the markets, market makers, or High Frequency Trader’s HFTs are the cause of poor results and lost profits, 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 from large to small funds, HFTs, and Professionals are all using Technical Analysis. However the truth is that most of the Market Participants are not using it. This is the advantage that retail traders have, because by looking at a chart you can learn to read what is going on before price moves.
An excellent chart example is below, and it is a Cloud Industry Stock.  The Cloud Industry is one of the big industries, and is going to reshape the world economy over the next decade.
This stock was sideways for a period of time, gapped up on High Frequency Trader HFT activity and then corrected. Now it is forming a Consolidation after a brief run out of the bottom. See in the bottom chart window that TechniTrader Volume Accumulation TTAV is leading Price.
The TTVA indicator is leading Volume over Price very strongly during the Consolidation. What this means is that a Market Participant Group 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 Dark Pools by the giant Buy Side Institutions. Soon HFTs and Professionals will discover this Quiet Accumulation and rush in to buy the stock, moving price up with momentum.
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 automated marketplace that is dominated by giant lot investors, Volume is now the more important indicator. Remember that there are 3 pieces of data that come from the market and those are Price, Time, and Volume aka Quantity.
By interpreting the subtle nuances of relationships between these data streams and what the relationships mean in terms of who is in control of price, retail traders can make higher profits by avoiding weak stock picks and whipsaws. They will also have a much more enjoyable trading experience and find they are making consistent profits over time with stronger run gains.
Trade Wisely,

Martha Stokes CMT

Instructor & Developer of TechniTrader Stock and Option Courses
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