Volume Tutorial:
Critical Volume
Understand Critical Volume
by Using Multiple Charts
A lot of our professional customers generally have more
than one chart opened for different periods and indicators simultaneously.
Having more than one chart and indicator open at one time can help you see
patterns in the market with greater clarity.
You can open new Java Chart by doing any of the following:
-
Clicking on
'New Chart' in the ‘Indicator’ menu of the Java Charts
-
Pressing ‘Ctrl+N’
from within the Java Charts
-
Clicking on
an index or exchange link in the members Market Summary
This way you can open the same indicator several times and
set different periods and volume moving averages for each chart.
You may ask why you should do this. When you have several different charts open you will get a better
picture of what's happening on the market. Sometimes by simply looking at
a 1-day chart you can lose the picture of the market, as what happened yesterday
or the day before can greatly affect what's going on today. That’s why it’s
very important to have a look at several different periods, especially the
5-day and 15-day periods if you are looking to place short and mid-term trades.
By looking at 15-day-and-up periods, you can see the general market trend and
major support and resistance levels of the market. By combining all this information
you can create a successful trading strategy.
For example, below we have a 5-days chart of the NASDAQ
100. You can see the rise in activity for the market during the period of
January 22-23, 2002:
From this chart you can see that the direction of the index
changed during an increase in the volume moving average (VMA) Some people
may ask whether the index will continue this uptrend, or will it die off and
continue going back down. The key to answering this question is to know whether
the volume associated with the index’s move upwards was large enough to make
this move permanent. We call this critical volume.
If you were to take a look at the 6-month chart for the
same indicator (NASDAQ 100) you will see that the volume associated with the
above change in direction was not critical. The volume surge above did not
approach the level of the volume that caused the index to be in a downward
trend to begin with on December 6th. Therefore this volume was
NOT critical, and the index should continue its downward trend.
Now, according to what we have said above, what do you think
about the peak of volume that occurred on February 14th, 2002,
from 13:00 to 16:00? Is it a critical volume signal that shows the market
is going to continue up (as it occurred on a down market), or is it not critical
and the market will go down?
We want to help you better understand the importance
of volume signals in trading, and we hope that our few starting points
will help you to make your own analysis and make successful trading decisions.
Special Note: All 1-day, 5-day, 6-month, and 1-year
charts are in real time and automatically refresh, but all other charts do
not automatically refresh but are still up to the minute data.
|
