Technical indicators

[Guest Trader_1707]

Who uses Volume while analysing the price? I mean in indices or commodity trading. I heard that there are  strategies based on use of Volume (in addition to other indicators), but I still didnt observe practical use of these strategies, as well as which indicator to use with Volume. 

[Guest Zero]

Hi Trader_1707 

 

I don't use volume as a definitive indicator - yet it is a part of the big picture (as are most indicators).  Just common sense would tell you that the higher the volume, the stronger the move.  Yet there is more to volume than the overall number, as a large volume for futures for example could be trades being opened OR closed.  So you have to investigate ways of analysing the volume further if you want to use it. 

 

A simple way might be to think of the volume breakdown of the price over a day's trading.  If the volume is quite high at certain prices, and then just ordinary at other prices over the day, then those prices can tell you something (where the big players are).  That in addition to the general trend can form a useful sense of the strength of commitment at certain prices. 

 

You might already know too of how with futures contracts, they break the volume down into classes, and give a COT (Commitment of Traders) report.  That can also give a hint as to how people/traders are positioned. 

 

It always depends (which is never helpful) - I've seen low volume days have a large range (low liquidity, market easily moved) and also have small ranges (no one interested in trading) - and vice versa.  So you'll have to get a feel for it yourself. 

 

So of itself - limited use.  But with some secret sauce - can be useful.  Cheers.

 

[Mercury]

Volume can be useful in assessing the reliability of a strong move (i.e. if volume is low and declining sharply into the move then the move may be a so-called exhaustion selling/buying).  This is a strong turning point set up, taken together with other things of course.  Alas you can't seem to get volume on indices and commodities, only individual shares.  It is something I have mentioned to IG.

[Caseynotes]

Volume is the key component in order flow on the price ladder platform, and this is why prop traders use it. They can see the orders stacking up on both side of the of the trade and use it as the prime indicator to make their decisions. Volume computation is difficult in FX due to the lack of a centralised exchange however large brokers can do it by use of there own records, FXCM do for example.

 

As a volume indicator is the main reason I use a multi-tick chart rather than a time based chart. Though it is a measure of the number of contracts exchanged and not their size, low volume periods may produce 30 minute bars while high volume periods may produce 3 minute bars.

[Guest Zero]

Just to add to what you've written Caseynotes, these days with algo's, volume doesn't have the same impact as it once did.  There are many way's to sneak large trades through unnoticed.  Just to make things a bit harder for us! 

 

[Caseynotes]

 That is a very good point. And lets not mention 'spoofing', I don't want to get extradited to face trail in  a US court.

[Guest Zero]

 

Yes, spoofing - seriously dodgy. 

[Guest Trader_1707]

Wow!  - many thanks for comprehensive responses. As for the use of the volume I  heard very little - I will better use your advice. All the more so - the theme of indices is my "favorite" and I try to attach to indices all possible and non-possible indicators (and since recently - also volumes) to evaluate what is better. 

[Guest Trader_1707]

By the way, on  shares ( Glencore or BP), volumes available. But this is what I checked - I think volumes available on all shares. Also on FX pairs. On indices, as  noticed - volumes not available. 

[Caseynotes]

Link to Tradeciety article on the complete low down on trend lines. Some of you may have realised these guys are giving away tips normally only available on expensive TA courses.

 

http://www.tradeciety.com/how-to-use-trendlines/

 

 

[Guest Trader_1707]

Let me add something....

May be somebody uses Histogram of Directional Movement+Parabolic SAR?

I mean the connection between these two indicators - i.e. correspondence of SAR points to the the same movement (up or down) of the histogram in DM.

But would be happy to read some tips of somebody else.

Thanks in advance.

 

 

[Caseynotes]

Hi    I have in the past played about with the indicators you mention but wouldn't rate them any higher than any other. I'm sure I read somewhere that past performance is not a reliable indication of future success. Once you've worked your way through the list of indicators take a look at this, ...

 

https://www.theforexguy.com/trade-forex-without-indicators/

 

 

[Mercury]

There is a lot to be said for price action trading   and it fits with a lot of what I do using slightly different methods (or perhaps more correctly combining several different techniques).  I do use indicators but only as corroboration, never as a trigger for trading.  Some traders try to come up with programmes combining multiple indicators but to me this is trying to be too clever, I prefer to keep it simple.  You can also buy into tools that promise to do something similar but I avoid these like the plague because it is too far removed from what is actually going on in a given market.

 

The price only approach is just another way of getting a read on the long term trend, likely turning point and identifying trading triggers.  Indicators can be helpful in supporting all of that but for me cannot be used as a substitute.

[Caseynotes]

Yes I agree, and I thought that was a particularly good, in depth explanation of what you should be looking for in a chart, add your indicators if you like for as you say corroboration but don't let indicators obscure the view. The basic chart is always trying to signal intention because the executed orders that make up the bars can't be hidden so are real and live, the likelihood of success often depends on where on the chart these intentions are signaled.

 

And as for paid for tools, try to look back at the career of the developer, you usually find they come up with a new one every 18 months or so, presumably that's how long the hook works for on enthusiastic punters before realisation dawns?

[Guest Trader_1707]

 

 ,

Great thanks for your replies!

Yes, you are right, to rely only on indicators in trading obviously is not a key aspect. Of course, I use price action - candle analyse, read many books about the theory of price action;  but also use indicators on the chart (my basic "kit" are MACD, Moving Average and Bollinger Bands). I  trade on FTSE and DAX, also pay attention to corresponding major FX pairs of these indices . By the way, just yesterday saw an interesting  feature on the hourly chart EUR / USD. According to the theory of price action, after Doji there must be reversal of the price, but it wasn't . I want to think trough this today: what worked out more clearly in this situation - indicators or price action.

As for Directional Movement - in histogram variant for me this indicator doesn't have great difference with MACD, sometimes MACD shows more real "picture", than DM. 

[Caseynotes]

 Hi  and    Bollinger bands (which incorporate a moving average) have been used for a long while and many older traders swear by them, they are also a fav of Rolf of Tradeciety.com and  he does an excellent guide on how to use them. MACD I have always considered too slow in default settings or too unreliable if speeded up which can be said of most.

Remember that a doji just means indecision or pause so could be a turning point but need to correlate that with time and especially place on the chart to give any additional meaning.

Price action is what is actually happening on the chart and this is important at significant levels (rejection or acceptance) whereas indicators try to give a clue to the future based on the past.

In the beginning we all grab at indicators for confidence but tend to peel them away as we realise their limitations. I don't look to indicators for signals, more for displaying such things as divergence (waning enthusiasm of price to keep going higher) and do consider leading indicators like pivot points, support/resistance and Fib levels to help signal where something may happen, they often work because many traders use them. 

So you are looking for price action to display it's intention at a specific place on the chart, as price moves towards a significant level there will likely be divergence as indecision creeps in in the minds of traders.

Knowing what to look for and where to look for it is key.

[Mercury]

There is an interesting observation in what you said  about "according to the theory".  Often created "systems" come with a set of rules but the only rule is that there are no rules.  The point to remember is that we are dealing with human nature, in particular human emotions, when trading.  Even the Algos are programmed by humans.  When you boil it all down and strip away all the fancy analytics, charting systems and trading screens what we are seeing is people making deals.  A deal is only made when a price is found that someone is willing to buy and sell at and what governs that is the emotion behind sentiment.  

 

In my view all we do with technical analysis is try to map the ebbs and flows of this sentiment into a wider pattern of behaviour and whether you use large timeframe trend analysis of short time frame candlestick techniques the chances of getting it wrong are high.  This is why money management is so key.  Get out of losers fast and let winners run.  Sometimes there is simply no answer to why a "rule" was broken.

[Guest Trader_1707]

Of course, the market is "made" by humans, but concerning price action - my opinion is that this is none the less a theory, an aggregate of analytical methods of price moving without indicators, based only on the chart.

And YES, you're right, , sometimes there is no answer: why a rule was broken and, and the only rule is that there are no rules. I read a lot of books on price action - Japanese Candelstick by Steve Nison; Galen Woods and so on. Took out  a lot of useful  from them, but much separated and, based on this - developed my own strategy. Can you recommend any other books on price action?

[Mercury]

Sorry no  is it not really my focus area and I don't know that much about candlestick trading, just enough to be dangerous...

 

I do however agree and endorse your approach re reading widely and taking pieces that work for you into your own method.  M method has been gleaned from several sources.  I have observed that many traders seem to prefer to focus on one or two mechanisms and love the KISS principle.  Others are very complicated and create involved algorithms and trading programmes.  I find myself in the middle here in that I am not interested in overly complicated programming and mathematics/statistics but also don't buy an overly simplistic approach.  I have therefore several layers of analysis, principally on larger time frames (Monthly, Weekly, Daily) and then seek more precise entry/exit on Hourly and 4 Hourly charts.  It is only on the hourly that I would entertain candlestick forms but frankly I only use them to support my preexisting assessments not as a trigger in and of themselves.

 

Having said all that of course it is horses for courses.  I am a long term swing trader so my intention is to be in a trade for several weeks or longer.  The way I think of price action is simply whether the price hits key turning points I have identified well in advance and whether it pushes through or get rejected.  The actual form of the candles around such moments is of lesser significance for me.  The strength of the breakout or rejection is more important.

[Caseynotes]

  here is a recent, updated and expanded article on price action trading from the same author.

 

 https://www.theforexguy.com/price-action-trading-tutorial/

 

Every candle tells a story, check out these 3 articles on daily candlestick setups that can give an indication as to the next day(s) price action.

 

https://www.theforexguy.com/power-candle-strategy/

https://www.theforexguy.com/the-inside-bar-breakout-trading-strategy/

http://www.learntotradethemarket.com/forex-trading-strategies/price-action-setups-pin-bars-fakeys-inside-bars

 

 

 

 

[Guest Trader_1707]

, excellent articles, exactly what i need with simple brief examples; because large amount of information described in books of Steve Nison and etc, make my brains fog. 

Saved all these articles to bookmark for further reading and  research.

Thanks!

[Guest Trader_1707]

,

 

I studied thoroughly your yesterday articles in the links - really written very excellent and the main - briefly, and have only one little question: these HH (higher high), HL (Higher low) and LH (lower high), LL (lower low) are built according the highest and the lowest figures of candels? Or these points HH, LH and so on, are not connected with maximum and minimum of candels?

[Mercury]

Yes I agree  that was very useful  but tell me, in your experience or via reading do you have a view as to whether price action and candle stick signals work better at certain time frames or the same for all?

[Caseynotes]

Hi  &    The basic principle of the higher high followed by a higher low in a bull trend is an attempt to keep it simple and should hold true if the bulls are doing their job right. The bull trend pattern should look like a uniform upward zig-zag or stairs. Entries on the previous dip should be defended on the next retrace. Re-entries, scaling in and new bulls should cause the next higher high, any time this fails means the bulls are losing control. A trend is about price moving in a control way (bull/bear agreement) to a new level without much opposition (that will come concertedly at the next level), the pullbacks should be caused by bull profit taking and a few brave counter-trenders (who will run like whatever come the first sign of failure).

 

The wicks are important as that was the actual level where the steam ran out on the run of that candle, the close of the candle is a function of the time frame you are using and we are all using different time frames.

 

Because the candles are uniform for any given time frame they are directly comparable along side each other on your chart so candle patterns do work on any time frame, the larger the time frame the more input information therefore the more relevant.

But as with everything else price action needs a contextual framework, a candle reversal pattern at support/resistance or round number, a power bar away from one of these zones, an engulfing candle closing outside a triangle. 

As with everything else, spot the context first (this here could be a turning point, this could be a breakout), then look for price action to confirm.

 

 

[Caseynotes]

  Along similar lines, a nice short educational video (new today) demonstrating how to use technical analysis with price action to control risk. Learning how to control risk not only helps prevent blowing up an account but is the basis for growing one.

 

http://education.forexlive.com/!/the-five-smartest-words-retail-traders-say-20160824

 

 

[Guest Trader_1707]

Thanks, 

I'll look through this, but the best articles are in links that you sent before. Really worth reading. Espeically thoes with the scheme where described "the search of trend" by HH — higher high, HL — higher low, LH — lower high, LL — lower low.  I read about these HH, HL... in some books before, but didnt pay attention on it as that time read my desk-book by Steve Nison and his  research of  japanese candlesticks. Now i turn my attention on Nial Fuller and his articles(one of his articles I found in links that you sent before). But I constantly think: it can't be in reality that the chart can be analyzed without no indicators. At least Moving Average must be on chart, or several MA (fast and slow) for determining the trend by their crossing. 

[Caseynotes]

  you are welcome, re; indicators, everyone needs something to add confidence, confluence, confirmation to their decisions. Some traders tell me experience is enough but I don't know where you can buy that.

Whatever you do don't look at  https://www.theforexguy.com/   the Indicator Autopsy articles page.

As I have said in the past, I like a moving average and something to show divergence within momentum but other than that let the candles speak for themselves.

 

[Mercury]

I think that is right  but I too would caution against over reliance on indicators to trigger trades, as I believe  is suggesting in his last post.  Indicators are by definition historic and only show what has happened not what will (just like price candles actually).  There isn't really such a thing as a forward looking indicator.  All that we have is past behaviour and how the markets react to circumstances.  You need experience with any indicator to pick up the true signals just as you need the same to recognise what candles may be telling you.

 

What I have found is that there is truly nothing that can tell you consistently 100% what will happen.  This is why I use multiple signals to confirm a set up before triggering a trade and indicators are just one supporting cast member of this method.  Even then I am wrong more than I am right...

 

So by all means search for the indicators you feel works best for you but I would caution against a trading method that solely used indicators.  I'm sure you can find others who will disagree.

[Caseynotes]

I would agree with all that , for me   it is about identifying a time and place on a chart when/where a surge or a reversal may happen. Time could be around a news event, time/place would be when price arrives at a level on the chart that has proved significant in the past. Look how price responds at these junctions then look for the indicator to help confirm what you are seeing. 

But must avoid doing it the other way round, the indicator giving a signal first then you looking to jump in. All indicators give false signals all the time.

I believe this is the main reason most traders fail, they simply run out of resources while learning that indicators only indicate possibility not probability.

 

 

[Guest Trader_1707]



All this corresponds to reality:  noboby can tell where the price will move next time, but there must be at least any principles, or indicators, or price action - that can predict to a greater or lesser degree the further price moving. Surely it is clear that indicators move according the price moving and only demonstrate in a graphical format the current price move. 

But what do you tell about pivot points? Here also there are no rules?