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Frequently Asked Questions
Technical Analysis
How does
your technical analysis differ from others?
Volume is the difference! We are the only
company to specifically provide the trading volume and volume-based technical
analyses for all major indexes and exchanges (which account for over 11,000
stocks). By analyzing volume, you can see where the market is headed. The
mistake that most people make is to analyze the price of stocks or indexes and
forget that price, by itself, does not mean much. 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. The majority of descriptions include a detailed
explanation of the indicator calculations and an example to illustrate how to
use it in technical analysis.
You will find that we divide the technical studies into four main categories: a)
MV indicators - these are our proprietary indicators developed by our research
team and available only from us; b) advance/decline indicators - this is a group
of technical studies that are based on the advance/decline issues and volume
data; c) volume indicators - this group includes indicators that 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 matter. When we have volume =1, we have 1 buyer and 1
seller. Volume does not show us how many buyers or sellers we have in the
market. When the price rises, we have more buyers who are willing to pay higher
prices than sellers (the demand is greater) and when the price declines, we have
more sellers willing to sell at cheaper prices (the supply is greater).
However, the appearance of a big surge in volume 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 large number of traders have satisfied
their demands - those who wanted to sell have sold and those who wanted to buy
have bought. At this point, we have a shift in the supply/demand balance and a
change in the market mood and, as a result, a trend reversal.
In simple words, if after a long downward run under the pressure of sellers you
see a big volume surge, the market has dropped to a level at which it has become
attractive to a large number of buyers who have decided to take advantage of the
opportunity to buy low-priced stocks. These buyers have purchased a large number
of shares (a big volume surge) from sellers and the number of sellers who pushed
the market downward has been reduced dramatically. That means that the selling
pressure has been reduced, while the pressure of buyers is growing. In turn,
that means that we can anticipate a trend reversal.
You can read more about volume surges in our article entitled "Overbought/Oversold".
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 must analyze
indexes. For example, the SP emini tracks the S&P 500 index and, if the
technical indicators applied to the index point and the trend reversal, we think
that the SP emini would rather follow the index trend, even if the same
technical indicators that applied to the emini pointed in the opposite
direction.
If you trade other stocks, your stock will still likely be included in one of
the indexes and 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 a recession and a technical analysis of your stock
shows an uptrend, it probably will be dragged down by the market despite your
stock analysis. Therefore, it makes sense to get a good grasp on what is
happening at the index or stock exchange level. We have found that volume
analytics of the indexes are excellent vehicles to use in making that
determination.
Why
should I analyze the longer-term trend?
We believe that longer term analysis is essential for any trading system. When
trying a technical indicator, a trader often becomes disappointed in it and
assumes that it is a poor indicator instead of finding the source of his bad
trades.
Every trading system and every technical indicator (chart) setting must be
adjusted to a longer timeframe trend. For instance, if you trade a 5-day chart
and your technical analysis generates a "Buy" signal, but the price does not
rise and continues to decline, you might assume that your technical indicator is
poor. Instead, we recommend that you take a look at a longer timeframe to see
the source of the false signal. In many cases, you will find that when a 5-day
chart generates a false signal, a 60-day chart shows the opposite signal. This
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 that can be ignored (false
signals) while all "Buy" signals will likely be profitable. In this case, we
recommend that you adjust the trading system in accordance with the longer-term
trend. For example, in the case of a longer term uptrend, a trader may decide
to: a) ignore "Sell" signals and trade only "Buy" signals or b) change the
trading system rules and react only on strong "Sell" signals while trading (even
weak) "Buy" signals.
How
difficult is volume analysis?
The analysis of volume-based technical indicators is very simple and, in many
cases, uses the same principles as used in the price-based technical studies
(MACD, RSI, Stochastics).
Example of trend confirmation
If the SBV Oscillator moves upward and the price MA (Moving
Average) rises, technical analysis tells that this indicator is confirming
the up-trend. When the SBV Oscillator declines during a price slide, it is
confirming a down-trend.
Example of trend reversal
A divergence of the SBV Oscillator movement and the price trend can be used to
anticipate possible changes in the market trend. A declining SBV Oscillator
during a price advance may indicate the possible development of a new
down-trend, while an advancing SBV Oscillator during a price decline can
indicate the possibility of a new up-trend beginning. In effect, if there is a
change in the SBV Oscillator direction, you can anticipate a change in the
trend.
The same principles can be applied to the 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, use the same principles as those used in the price-based technical
studies (MACD, RSI, Stochastics).
Example
If the SBV Oscillator moves upward and the price MA (Moving
Average) is rising, technical analysis tells us that this indicator is
confirming the up-trend. When the SBV Oscillator declines during a price slide,
it confirms the down-trend.
The divergence of the SBV Oscillator movement and the price trend can be used to
anticipate possible changes in the market trend. A declining SBV Oscillator
during a price advance may indicate the possible development of a new
down-trend, while an advancing SBV Oscillator during a price decline can
indicate the possibility of a new up-trend beginning. If there is a change in
the SBV Oscillator direction, you can anticipate a change in the trend.
The same principles can be applied to the Advance/Decline Oscillator,
McClellan
Oscillator, Accumulation/Distribution line, VAO, OBV and other volume and
advance/decline based technical studies. The same principles are used in our "simple trading system".
How
many indicators should I use?
As a rule, we recommend that you use several technical indicators, but not so
many that you become confused. We consider it wrong to base a trading decision
on only one technical indicator. 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 will you receive a complete picture of
the trend. There is no price movement without volume and there is no volume
movement without a change in price.
There are many ways to use several technical studies. One approach is to
buy/sell only when all indicators used point in the same direction (all
indicators are weighted equally). Another way might be to use one main indicator
to generate a Buy/Sell signal, and the other indicators to confirm the main one
(one indicator is given a heavier weight than the others).
How
many timeframes should I analyze?
Like technical studies, a trader may use several chart timeframes to make a
trading decision. For instance, a trader can decide to buy/sell when 5-day,
15-day and 30-day technical analyses (charts) point in the same direction (all
timeframe are weighted equally). Another trader can use a 15-day chart to make a
buy/sell decision, but open/close a trade only when the 15-day technical
analysis is confirmed on some level by a 30-day analysis (the 15-day chart is
the main chart and is weighted more heavily than the 30-day chart).
What
should I do when my analysis generates a signal to open/close a trade
too early?
The stock market is always in constant change. It would be wrong to assume that
the technical indicator settings will work forever, and that you can build a
trading system that will always be profitable 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 a fast or slow trend reversal. Accordingly, our
technical indicator must generate signals more quickly or more slowly.
If the trading system you built generates signals too early (the system
generates a "Buy" or "Sell" signal, although the security is still moving up or
down, respectively) the market has become less volatile and your trading system
or technical indicators setting need to be adjusted to the current market
condition.
In that case we recommend the following:
a) Check the volatility indicators to see if the volatility has changed and if
this is really why the performance of your trading system has declined. For this
purpose, you may use VIX (Volatility Index), ATR
(Average True Range) or other volatility indicators;
b) Stop trading and test your system to see whether the signals are generated
early consistently or you have encountered a single exception;
c) If the market became less volatile and/or the signals are generated too early
(usually during the longer time-frame up-trend), you can try to adjust your
trading system so that it begins to generate signals after a delay. You can
choose longer timeframe charts, increase the period setting for the indicators
used 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 that you built has begun to generate signals when it is
too late (the system generates a "Buy" or "Sell" signal, although the security's
trend has already reversed and it is already far from the bottom or the top and
may be close to the next reversal), the market has become more volatile and your
trading system or technical indicators setting should be adjusted to the current
market condition to permit you to react more quickly to the trend reversals.
In this case, we recommend the following:
a) Check the volatility indicators to see if the volatility has changed and if
this is really why the performance of your trading system has declined. For this
purpose, you can use VIX (Volatility
Index), ATR (Average True Range) or other volatility indicators;
b) Stop trading and test your system to see whether the signals are consistently
generated when it is too late or if this is just a single exception;
c) If the market has become more volatile and/or the signals are generated too
late (usually during a longer time-frame down-trend) you can try to adjust your
trading system so that it generates signals more quickly (more frequently). You
can choose a shorter timeframe chart, reduce the setting period for indicators
or change the trigger point (the rules when the signal is generated).
Do you have any tutorial on technical
analysis?
Yes, we have a detailed "Volume Tutorial",
"Advance/Decline
Tutorial" and "SBV Tutorial", which are updated
continually with new articles and research results. In addition, you can 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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QQQQ
Signals
Past 6 Months |
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11%
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22%
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Compound |
Compound
Margin |
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As of 3/21/2010 |
Buy / Sell Trading signals.
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