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!
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.
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.
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.
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.
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".
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).
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).
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).
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).
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.
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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