Examples For Short-, Mid- & Long-Term Traders
Example 1: Remember last year, when the long market downtrend finally reversed and switched to a steady up-trend?
Again, a volume analysis chart provides us with fresh insight. Three volume surges (two large ones in July and October 2002, as well as a smaller VMA peak in February 2003) correspond with a distinct long-term trend change for the S&P 500. You could argue it was prompted by the outbreak of the war in Iraq. However, our volume analysis indisputably demonstrates that that index "was ready" to move up, given the large buildup of volume to the price downside, as evidenced by the two very significant volume surges. It could also be argued that the new uptrend actually began on October 10, 2002 and that the January 2003 move to retest the recent lows was just a mid-term correction of the new up-trend.Example 2: Do you remember the market action in March 2004?
On this 30-day chart, you can clearly establish that each major volume surge was followed by an index reversal.
Example 3: Fig. 4 shows that the discussed relationship between volume surges and index reversals applies equally well to the short-term, not just to the mid- and long-term. Note how each volume surge coincides with an index reversal point.
Trading remains an inexact science, or perhaps more fittingly, an art. Every trader knows that no system or analysis technology is 100% perfect, and neither is volume analytics. We have just touched on the topic briefly here, yet the examples provided should have given you at least an idea of the benefits this proven and refined methodology could bring to your trading.
If you would like further information about this topic, please refer to our Chart School.