A bit of the What's Familiar... continuing the occasional theme from last September which outlines the oft-seen signs of reversals of direction.
On the right is Elsie, my dear departed Lab Retriever on the screen saver. On the left is the chart of FAZ from today which has a few short yellow lines pointing to areas where dojis, near dojis, five-minute candlesticks which end at the high or low of the time frame, five minute candles which have wide price range but tight open to close prices. Also, high volume spikes which often correspond to reversals have magenta lines at their extreme price points with the white line coming up from the corresponding volume spike below. These high volume spikes are excellent exit points from successful trades or cautiously, present opportunities to fade the most recent move for reversal.
Clearly, not all reversals are large enough to play, and some indicators mentioned don't materialize into reversals at all... that is why stops should be implemented. --"do as I say, not as I do" (chuckle!)
it's funny, when i am trading i see big price bar combined with a big volume bar, i think continuation of the trend. but as we can see from your chart, is the exact opposite. maybe that is why i have been having trouble with these high volume breakouts i try.
ReplyDeleteYeah, its counter-intuitive in many cases, Joshua. But remember, high volume can be exiting volume. In the highly liquid, high-volume stocks/ETF's, the kind of volume exhibited by the spikes I highlighted indicates the big traders are active and in many cases closing out or preparing to reverse on a successful trade. That is why you often see these high-volume spikes at the end of long, nice runs. They will often exit into strength if they see a reason to end the trade. With that much "weight" leaving the stock, the trend move being exited will flatten into consolidation or many times reverse, especially if they (or their computer-trade models) get back in in the opposite direction. If all small investor traders jump onto a trend as a result of the high-volume spike as you suggested, you could still never offset the actions of the market makers or the hedge funds, etc if they exit or change direction on a move. they have to much size behind them. I'm still very much in the learning stages but I am coming around to the fact that we small guys need to understand the importance of and try to read the movements of the big players. Ride their coat tails, if you will. My recent post from Dr. Brett's blog touches on this idea.
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