Better Breakout Trading

[brettc4]

Tech/a, is there a point at which volume is too high?
For example, say Volume is 5 or 10 times the average does that change how the volume can be intepreted?
I presently exclude anything where the volume is 10 times the average (mainly because it gets rid of thinly traded stocks), but is that a valid exlusion?

Brett

 

[tech/a]

Tech/a, is there a point at which volume is too high?
For example, say Volume is 5 or 10 times the average does that change how the volume can be intepreted?
I presently exclude anything where the volume is 10 times the average (mainly because it gets rid of thinly traded stocks), but is that a valid exclusion?

Brett

Brett

You bring up a very valid point.
Yes---other than options expiry which will skew volume.

Its more a matter of reading volume in context to prior(immediately prior say 3 bars) and after an extreme volume bar.

Lets say we have an extreme volume down bar after 3 lower low bars.This could well be an exhaustive volume bar.If the next bar went up on low volume then we could well have a significant low.
Vice Versa for a high.

But for breakouts

INITIALLY it is possible that there maybe excessive selling into buying and hence you'll see massive volume.If it is accompanied by enormous range as it was in our example there is a good chance that there is a great deal of hidden selling. Sometimes you can see this in the close off the highs of the bar but often it will only b reflected in the next day with an inside day OR commonly a spike high reversal bar.

A diversified and little understood topic!

 

[fapturbo]

The difference between a breakout and a potential breakout?

Oh right... Is that like getting onto a stock before it starts trending anticipating a trend is about to begin....

Don't you think confirmation would be better...

 

[tech/a]

Oh right... Is that like getting onto a stock before it starts trending anticipating a trend is about to begin....

Don't you think confirmation would be better...

Can be.

But I'm sure you have seen a trade setting up as plain as day and you can place yourself in a low risk high reward position.
You and I will take these trades.

 

[brettc4]

Lets say we have an extreme volume down bar after 3 lower low bars.This could well be an exhaustive volume bar.If the next bar went up on low volume then we could well have a significant low.

Hi Tech, do you know of any research on how accurate this pattern is at showing a significant low?

I have read a fair portion of 'Encyclopedia of chart patterns' which give a lot os statistical information about different chart patterns and this matches my personal goals of finding a trading system that has a good statistical chance of between a buy and hold strategy with a defined entry point and strict money management.

Cheers

Brett

 

[tech/a]

Brett

Its part of VSA
Volume Spread Analysis.
I dont know of any research on how accurate it is from an entry view point.
However it is certainly something which could be tested.
Just another thing to put on the "Must do before I cark it list".

VSA e book is available from

http://www.tradeguider.com/free/

 

[Foss4X]

Tech/a thanks for this interesting thread
Hmmm asked about scans. One I use is a price close above a 21 highest high (Metastock HHV(H,21). It will be followed next day either by an immediate retracement or it is off on a gallop. If it retraces, I wait for a red skycraper on the volume histogram. This selling climax should be followed by a period of very low volume, indicating no or little supply. Price is usually ready to resume its upward canter. Entry is a matter of personal preference, but one I use is a close above a 3-bar count back from the next pivot low following the selling climax.

 

[pavilion103]

I'm interested in continuing the discussion on excess volume on a breakout.
Near the top of trends excess volume can be quite scary as it is often profit taking/distribution.

In the example below you can see price has been within the range of the high volume conrol bar for some time. Price died off in the middle of the range and then started to build noticeably. I was cautious to see whether this was a buying climax before lower prices of accumulation with more demand entering.

Then we see a break on excessive volume. What does this mean? To me it would signal demand and a good entry. (I entered on my sim one day later after more confirmation).



Then.....



I've found that excess volume on a breakout can often be demand rather than supply as could be suspected (depending on background action).

 

[pavilion103]

From my research, I have obsevered that breaks from very tight ranges seem to be particularly potent.

Is this something people look for? either from a base or from a consolidation.