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Technical Analysis FAQ



How is your technical analysis different from all others?

Volume is the difference! We are the only company which specifically provides the trading volume and volume-based technical analysis for all the major indexes and exchanges (which are composed of over 11,000 stocks). By analyzing volume you see where the market is headed in the future. The mistake most people make is to analyze the price of stocks or indexes, forgetting that price, by itself, does not mean much at all. It is the underlying volume that is the force behind all market movements.
Volume moves markets!

S&P 500 Index

Were do I find information about volume and advance/decline based technical studies?

You may find a list of all technical indicators (studies) available with our charts in our "Technical Studies" section. Majority of descriptions include a detailed acclamation of indicator calculation with an example on how to use them in technical analysis.

You will find that we divide the technical studies into four main categories: a) MV indicators - this is our proprietary indicators developed by our research team and available with us only; b) advance/decline indicators - this is a group of technical studies based on the advance/decline issues and volume data; c) Volume indicators - this group includes indicators which are based on the volume; d) Price Indicators - the calculations of this indicator are based solely on price data.
S&P 500 Index


Why volume surges?

Volume is a two sided transaction. When we have volume =1 that means we have 1 buyer and 1 seller. Volume does not show us how many buyers or sellers we have on the market. When the price moves up we have more buyers willing to pay higher prices than sellers (demand is higher) and when the price declines we have more sellers willing to sell at cheaper prices (supply is higher).

However, the appearance of a big volume surge means that a large number of shares are being transferred from one group of market participants to another; it is at this point that the market can become "overbought" or "oversold". At this point a big number of traders have satisfied their demands - those who wanted to sell sold and those who wanted to buy bought. At this point we have a shift in the supply/demand balance and a change in the market sentiment and as a result a trend reversal.

In simple words, if after a long run down under the pressure of sellers you see a big volume surge, it means that the market dropped to the level when it became attracted to a big number of buyers who decided to use low priced stocks to buy. These buyers bought a big number of shares (big volume surge) from sellers and the number of sellers who pushed the market down has been reduced dramatically. That means that the selling pressure is reduced while pressure of buyers is growing and that means we may anticipate a trend reversal.

You may read more about our understanding of volume surges in our "Overbought/Oversold" article.
S&P 500 Index


Why should I analyze indexes?

If you trade index derivatives, index options, options on index derivatives, e-mini index futures and other index based trading vehicles you have to analyze indexes. As an example, SP emini tracks the S&P 500 index and if the technical indicators applied to the index point and to the trend reversal we think that the SP emini would rather follow the index trend even if the same technical indicators applied to the emini would point in the opposite direction.

If you trade other stocks, still your stock will most likely be included in one of the indexes and it certainly included in the Exchange Composite index. As a rule, the market dictates the direction of a particular security, never the other way around. If the market is in the recession and the technical analysis applied to your stock shows uptrend, most likely it will be dragged down by the market in spite of your stock analysis. It therefore makes sense to get a good grasp on what is happening at the index or stock exchange level, and we have found volume analytics of the indexes to be an excellent vehicle to make that determination.S&P 500 Index


Why should I should I analyze longer-term trend?

We believe that the longer term analysis is essential for any trading system. In many cases after trying a technical indicator a trader becomes disappointed in it by assuming that this is a bad indicator instead of finding the source of the bad trades.

Every trading system and every technical indicator (chart) setting has to be adjusted to the higher timeframe trend. For instance if you trade a 5-day chart and your technical analysis generates a "Buy" signal, yet, the price does not move up, but continue to decline, you can assume that your technical indicator is bad. Instead we recommend taking a look at higher timeframe to see the source of the fake signal. In many cases you will find that when a 5-day chart generates fake signal, 60-day chart shows opposite signal. That means that the shorter-term trend is under the influence of a longer-term trend.

When the longer-term chart (technical analysis) indicates an up-trend, the shorter-term chart may generate "Sell" signals which could be ignored (fake signals) while all "Buy" signals most likely will be profitable. In this case it is recommended to adjust a trading system in accordance to the longer-term trend. As an example in case of longer term uptrend: a) a trader may decide to ignore "Sell" signals and trade only "Buy" signals; b) or a trader may change trading system rules and react only on strong "Sell" signals while trading even weak "Buy" signals.
S&P 500 Index


How simple is volume analysis?

The analysis of volume based technical indicators is very simple and in many cases the same principles that are used in the price based technical studies (MACD, RSI, Stochastics) are used in volume analysis.

Example of trend confirmation:

If the SBV Oscillator moves up and the price MA (Moving Average) rises then the technical analysis tells that this indicator confirms the up-trend. When the SBV Oscillator declines during the price slide it confirms a down-trend.

Example of trend reversal:

The divergence of the SBV Oscillator movement and price trend could be used to anticipate possible changes in the market trend. The declining SBV Oscillator during the price advance may indicate possible developing of a new down-trend, while advancing SBV Oscillator during the price decline could indicate a possibility of begging a new up-trend. Basically, if you change in the SBV Oscillator direction you may anticipate change in the trend.

The same principles could be applied to Advance/Decline Oscillator, McClellan Oscillator, Accumulation/Distribution line, VAO, OBV and other volume and advance/decline based technical studies; and the same principles are used in our "simple trading system".


The analysis of volume based technical indicators is very simple and in many cases the same principles that are used in the price based technical studies (MACD, RSI, Stochastics) are used in volume analysis.

Example:

If the SBV Oscillator moves up and the price MA (Moving Average) rising then technical analysis tells that this indicator confirms the up-trend. When the SBV Oscillator declines during the price slide it confirms a down-trend.

The divergence of the SBV Oscillator movement and price trend could be used to anticipate possible changes in the market trend. The declining SBV Oscillator during the price advance may indicate possible developing of a new down-trend, while advancing SBV Oscillator during the price decline could indicate a possibility of begging a new up-trend. Basically, if you change in the SBV Oscillator direction you may anticipate change in the trend.

The same principles could be applied to Advance/Decline Oscillator, McClellan Oscillator, Accumulation/Distribution line, VAO, OBV and other volume and advance/decline based technical studies; and the same principles are used in our "simple trading system".

S&P 500 Index

How many indicators should I use?

As a rule we recommend using several technical indicators, yet, not too much to get confused about. We consider it's wrong to base a trading decision on one technical indicator only. At least two technical indicators should be used. One of them should be price based and another should be volume based. Only by analyzing volume and price together you may receive a complete picture of the trend. There is no price movement without volume and there is no volume without a change in price.

There are many ways of using several technical studies. One of the approaches is to buy/sell only when all used indicators point in the same direction (all indicators are equal weighted). Another way could be using one main indicator to generate a Buy/Sell signal, and other indicators to confirm the main one (one indicator is heavier weighted than others).S&P 500 Index


How many timeframes should I analyze?

The same as with several technical studies, a trader may use several chart timeframes to make a trading decision. For instance a trader can make a decision to buy/sell when 5-day, 15-day and 30-day technical analysis (chart) point in the same direction (all timeframe are equal weighted). Another trader can use 15-day chart to make a buy/sell decision, yet open/close a trade only when the 15-day technical analysis is confirmed on some level by 30-day analysis (15-day chart is main and is heavier weighted than the 30-day chart).

S&P 500 Index

What should I do when my analysis generates a signal to open/close trade too early?

The stock market is always in the constant change. It would be wrong to assume that the technical indicators setting will work forever, and the build trading system will be profitable all the time without any adjustment. One of the main parameters of the stock market is its volatility. Depending on how volatile the market is we may see fast or slow trend reversal and accordingly our technical indicator have to generate signals faster or with delay.

If the trading system you build started to generate signals too early (system generated a "Buy" or "Sell" signal yet the security is still moving up or down respectively) it means that the market has become less volatile and your trading system or technical indicators setting need to be adjusted to the current market condition.

In this case we may recommend the following:

a) Check volatility indicators to see if the volatility has changed and this is really the case why your trading system dropped in performance. For this purpose you may use VIX (Volatility Index), ATR (Average True Range) or other volatility indicators;

b) Stop trading and put your system on test to see if the signals are generated early constantly or this is just a single exception;

c) If the market became less volatile and this is the reason of too early signals you may try to adjust your trading system in the way it start to generate signals with delay: you may try to choose higher timeframe chart, increase period setting for used indicators or change the trigger point (rules when the signal is generated). S&P 500 Index


What should I do when my analysis generates a signal to open/close trade too late?

If the trading system you build started to generate signals when it’s too late (system generated a "Buy" or "Sell" signal yet the security trend is already reversed and it's already far from the bottom or the top respectively and could be close to the next reversal) it means that the market has become more volatile and your trading system or technical indicators setting need to be adjusted to the current market condition in order to react faster to the trend reversals.

In this case we may recommend the following:

a) Check volatility indicators to see if the volatility has changed and this is really the case why your trading system dropped in performance. For this purpose you may use VIX (Volatility Index), ATR (Average True Range) or other volatility indicators;

b) Stop trading and put your system on test to see if the signals are generated when it's too late constantly or this is just a single exception;

c) If the market became more volatile and this is the reason of too late signals you may try to adjust your trading system in the way it start to generate signals faster (more frequent):you may try to chose lower timeframe chart, reduce period setting for indicators or change the trigger point (rules when the signal is generated).S&P 500 Index


Do you have any tutorial on technical analysis?

Yes, we have detailed "Volume Tutorial", "Advance/Decline Tutorial" and "SBV Tutorial" which are constantly updated with new articles and research results. In addition you may find a list of all technical indicators (studies) available with our charts in our "Technical Studies" section.

S&P 500 Index

The FAQ section did not answer my particular question. How can I contact MarketVolume® with a question?

If you have a question or a suggestion, send us an email. Due to the heavy volume of emails we receive, our support staff may not be able to respond to your email immediately, so please allow 24 hours for a response.


 

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