Friday, April 30, 2010

04.30.10 - Using Volume As Trend Confirmation

In today's chat, I have been discussing the use of relative volume to confirm fast momentum move reversals. The dashed line represents volume on the SPY adjusted for the daily "smile" effect where am and pm volume are higher than mid-day volume such that we can see how unusual volume is on a normalized basis. Fast intraday moves will often wiggle around trend, and its easy to get itchy trigger fingers and take profits too soon. Note how the cessation of volume in the first example confirms the end of trend (volume in orange, price in blue). Likewise, in the second case, the trade remains open because volume is still rising even as price shows potential early stabilization. In this case, the light gray VIX line crosses also act as confirmation.

5 comments:

Vic said...

Hi Jeff,

Got back late last evening from a vacation. Was going over your chart am having a difficult time making heads or tails. First, what dashed line are you referring to? I see lots of dashed lines and don't see which one relates to relative volume. In addition, you talk about cessation of volume in the first example with volume in orange and price in blue--again what lines are you referring to? I do see the VIX cross over in gray and that is a nice example of confirmation.

Thank you, Victor

jgpietsch said...

Hi Vic, it's hard to see in this chart for sure. There is a thin dashed green and red line just under those orange hats. If enough TS users are interested, I'll do a post with the code and a better chart example. Jeff

Anonymous said...

i'd like to see the code so i can place the indicator on the chart to see this more clearly.

jgpietsch said...

Sure, please remind me in tomorrow's post and I'll do a special code post. JP

jgpietsch said...

Here is the promised post with code:

http://marketrewind.blogspot.com/2010/06/easylanguage-relative-volume-indicator.html