Using Volume to Confirm Price Trend. Confirmed Up Trend

Size: px

Start display at page:

Download "Using Volume to Confirm Price Trend. Confirmed Up Trend"

Marjory Goodwin
5 years ago
Views:

1 Using Volume to Confirm Price Trend Today s Trading Forum is going to focus on using volume in conjunction with price trend. Volume is a valuable trading tool that can be used to confirm the price trend of a stock or ETF. Prices do not move without buyers and sellers. Volume flow precedes price and is the key to measuring the validity and sustainability of a price trend. Confirmed Up Trend Stock price is trending up Volume is increasing on days a stock closes up Volume is decreasing on days a stock closes down Confirmed Down Trend Stock price is trending down Volume is decreasing on days a stock closes up Volume is increasing on days a stock closes down Confirmed Up Trend 1

2 In my experience volume flow is a simple but reliable trend confirmation indicator. My favorite volume indicator is the On Balance Volume (OBV) line which can be downloaded from StockCharts.com. On Balance Volume measures volume flow. When a stock or ETF closes up, volume is added to the line and when a stock closes down volume is subtracted from the line. A cumulative total of the volume additions and subtractions form the On Balance Volume line. On Balance Volume Indicator When Close is Up Volume is Added When Close is Down Volume is Subtracted A Cumulative Total of Additions and Subtractions Form the OBV Line Here is an example of the On Balance Volume line for Riverbed stock which you can see is located at the bottom of the price chart. OBV Line Trending Up The numerical value of the on balance volume line is not important. We simply want to see an up sloping line to confirm a price up trend. An up sloping line indicates that the volume is heavier on up days and buying pressure is exceeding selling pressure. Buying pressure must continue to exceed selling pressure in order to sustain a price up trend. So this is a simple indicator to use that instantly tells us if we should be buying a stock or ETF. 2

3 At the bottom of the preceding price chart we can see that the On Balance Volume line for Riverbed is trending up. This up sloping OBV line indicates that the volume flow is heavier on up days and buying pressure is exceeding selling pressure enabling Riverbed stock to continue its price up trend. Volume is Heavier on Up Days Up Sloping OBV Line Buying Pressure is Exceeding Selling Pressure Helps Sustain Price Up Trend Let s look at an example of how I used on balance volume to select a trade. My brokerage account profit loss report shows that I purchased 2,200 shares of Bucyrus symbol BUCY. We can see from the price chart that follows that Bucyrus stock price is trending up and the On Balance Volume line is also trending up confirming the price trend. 3

4 Price Trending Up OBV Line Trending Up Many times changes in the On Balance Volume line precede price changes so I have found volume to be a valuable trading tool that can be used to confirm price trend and indicate if a price trend can be sustained. The On Balance Volume line can also be used as a confirmation indicator to enter short positions. I use On Balance Volume to confirm a price down trend when I take a short position. The brokerage account profit loss report that follows shows a portfolio of short ETF positions. On Balance Volume is helpful in confirming the price trend for virtually any market including ETFs. One of the short positions in this portfolio is the Russia ETF November 50-strike put options. 4

5 Short Positions One of the short positions in this portfolio is the Russia ETF November 50-strike put options. I purchased these put options with the Russia ETF in a price down trend which was confirmed with a down sloping On Balance Volume line. These put options profited as the price of the Russia ETF declined. Price Trending Down OBV Line Trending Down 5

6 I use On Balance Volume in conjunction with my 3 trend following systems. A buy signal is indicated if one of my trend following systems indicates a buy which is confirmed with an up sloping On Balance Volume line and a sell signal is indicated if one of my trend following systems indicates a sell which is confirmed with a down sloping On Balance Volume line. Short Term - MACD Trend Following Systems Intermediate Term - 50/100-Day EMA Longer Term Major Trend System So to summarize, On Balance Volume is a valuable trading tool that can be used to confirm the price trend of a stock or ETF. Volume flow precedes price and is the key to measuring the validity and sustainability of a price trend for virtually any market. 6

7 Disclaimer Copyright 2009 by Legacy Publishing LLC. All Rights Reserved. Reproduction or translation of any part of this work beyond that permitted by Section 107 or 108 of the 1976 United States Copyright Act without the permission of the copyright owner is unlawful. Investing involves the risk of loss as well as the possibility of profit. All investments involve risk, and all investment decisions of an individual remain the responsibility of that individual. Option and stock investing involves risk and is not suitable for all investors. Past performance does not guarantee future results. No statement in this publication should be construed as a recommendation to buy or sell a security. The author and publisher of this publication cannot guarantee that the strategies outlined in this publication will be profitable and will not be held liable for any possible trading losses related to these strategies. All information provided within this publication pertaining to investing, options, stocks and securities is educational information and not investment advice. Legacy Publishing advises all readers and subscribers to seek advice from a registered professional securities representative before deciding to invest in stocks and options featured within this publication. None of the material within this publication shall be construed as any kind of investment advice. The author of this publication is neither a registered investment advisor nor affiliated with any broker or dealer. Although every precaution has been taken in the preparation of this publication, the publisher and author assume no liability for errors and omissions. This publication is published without warranty of any kind, either expressed or implied. Furthermore, neither the author nor the publisher shall be liable for any damages, either directly or indirectly arising from the use or misuse of the book. Users of this publication agree to indemnify, release and hold harmless Legacy Publishing, its members, employees, agents, representatives, affiliates, subsidiaries, successors and assigns (collectively, the "The Companies") from and against any and all claims, liabilities, losses, causes of actions, costs, lost profits, lost opportunities, indirect, special, incident, consequential, punitive, or any other damages whatsoever and expenses (including, without limitation, court costs and attorneys' fees) ("Losses") asserted against, resulting from, imposed upon or incurred by any of The Companies as a result of, or arising out of this agreement and/or your use of this publication. This publication is designed to provide accurate and authoritative information in regard to the subject matter covered. It is sold with the understanding that the author and publisher are not engaged in rendering legal, accounting, or other professional services. If legal advice or other expert assistance is required, the services of a competent professional person should be sought. Use of the material within this publication constitutes your acceptance of these terms. 7

ULTIMATE AMAZON SELLER COURSE REFUND POLICY / DISCLAIMER / TERMS AND CONDITIONS OF USE

ULTIMATE AMAZON SELLER COURSE REFUND POLICY / DISCLAIMER / TERMS AND CONDITIONS OF USE 1 January 1, 2018 REFUND POLICY The Ultimate Amazon Seller course comes with a 14-day money back guarantee provided