Examples of a Short-Term Trades
We define a "short-termâ€ trend as a general market trend that usually lasts
from a few hours to several days.
The following example illustrates the basic principles behind
Chart 1. Relationship between surges in the volume moving
average (VMA) and index reversal points. NASDAQ 100 index. March
Above, you can see the short-term relationship
between price (i.e., index level) and volume. An increase in volume subsequently
affects the movement of price, causing the index to change direction. You can
see that when the Volume Moving Average surges, the index reacts. With this
knowledge, you can trade confidently and profitably. A simple trading strategy
based on this principle may look as follows:
Go short after a significant buying surge
(we define buying surge as a surge in volume that occurs as the index moves
higher). Cover on a (smaller) selling surge (a selling surge is defined as a
surge in volume that occurs as the index moves lower).
Go long after a significant selling surge. Sell on a (smaller)
Extent of Trend
||35 points down
||10 points down
||12 points down
Question: Can a trading strategy based on volume surges
include other technical indicators?
Answer: Yes, our volume indicators work well with price-based technical
indicators. Using volume as an additional indicator may substantially increase
the probability of making successful trades, and reduce the risk of losses.
While there is no indicator that is 100% accurate, combining our volume
indicators together with classic indicators such as MACD, RSI, Stochastics, and
others, may enable better, safer trades.
|Disclaimer: The chart
example is intended for educational purposes only â€“ it does not
constitute trading advice, nor does it make or imply any market trend