January 30, 2008
Volume at Price for AYI and Spot Gold
The Box has drawn a blank for five days in a row now (and eight total for the month of January). Thanks for your patience during this time. I believe it has become confused by the extreme volatility of late. AYI was the last idea that it came up with… here are the details for last Wednesday’s trade as sent to list members (if you’d like to join the list, just email me):
Long AYI above 39.32
Protective Stop below 36.33
Initial Risk ~$2.99 (7.60%)
1x Initial Risk covered at 42.31 (move stop to breakeven)
2x Initial Risk covered at 45.30 (begin trailing stop below lows of up bars)
Target 1.0: 45.36 (15.36%) (2.0R)
Target 1.1: 46.98 (19.48%) (2.6R)
AYI already moved 1x the initial risk, so the stop has been raised to breakeven above 39.32. I’ve been thinking about better ways to trail a stop and using volume at price is one idea that intrigues me (see earlier post). When you merge the price and volume bars you get a very clear picture of the trading, which should allow for better stop placement. Anyway, study the chart below and let me know what you think.
And just for fun, here’s a look at the past 20 days of spot gold, again with a volume at price chart. You have a much better picture of support and resistance when you merge price and volume.
Related:
Using Historical Price Volume Data for Entry/Exit Points, by Lisa Erdmier
Using Volume at Price to Trade Gold, by Lisa Erdmier
January 31st, 2008 at 2:11 am
What are the yellow lines on the charts?
January 31st, 2008 at 7:52 am
MrTrend: The horizontal bars in yellow mark the “value area” — where 70% of the volume traded. The relationship of one value area to the next determines up bars (green) versus down bars (red) instead of the tradition open to close or close to previous close relationship. It’s a much smarter way to think about up and down bars, I think.
January 31st, 2008 at 8:30 am
“I believe it has become confused by the extreme volatility of late”, Wouldn’t the whole idea of short term swing trading be to take advantage of volatility :)
January 31st, 2008 at 8:39 am
Born2: It looks for moments of hesitation or “pause” I believe, much like the old Dummy method of finding a low-risk spot with an unusually active stock. Your expected minimum reward must be much greater than your expected maximum loss, so low-risk entry is key — this is the “secret” to profitable trading.
January 31st, 2008 at 10:08 am
i’ve utilized VAP charts similar to these myself from time to time and Volume-Adjusted Price [or Moving Averages] charts too, though hardly at all compared to CandleVolume charts (which you also feature from time to time, and Dick Arms almost exclusively utilizes in his commentaries; and are excellent for illustrating reversals), however my favorite charts (when it comes to “atypical” charts — not overwhelming used) are plain old Point and Figure charts (great at illustrating support/resistance levels and “forcasting” price targets)… and although P&Fs certainly have their followers, i think these are much more those that are writing the commentaries than those reading them… btw, Dorsey Wright is excellent, and his books are the best on P&F… going back to VAP charts, several years back i did a trial subscription to some service and VAP charts where what they were pushing as their big advantage over other services… was really neat, and looked very similar to above charts — with black background and highlighted for volume peaks/climaxes etc… can’t remember name but i keep thinking of J-Trader so i think it was a similar combination of “a letter of the alphabet” hyphen “Trader”…?
January 31st, 2008 at 10:18 am
v838: J-Chart … I read Dorsey Wright’s book and liked it, but I don’t often use P&F charts.
January 31st, 2008 at 10:52 am
thanks for the name, and yes that was the service, and i would have never have gotten it… really hilarious mental block… at least i was right about something….. “back in the old day before computers” some floor traders used graphed pocket-tablets and charted their own P&F real-time to great advantage… P&Fs, like many things, derive some of their strength from the fact that they are not widely used… i like to think of them as Jedi Charts (or Sith if one prefers) — BEN: “POINT AND FIGURE …the CHART of a Jedi Knight. Not as clumsy or random as a BAR or CANDLE; an elegant weapon for a more civilized age.” …..and another — MOTTI: “Don’t try to frighten us with your sorcerer’s ways, Lord Vader. Your sad devotion to that ancient RICE CHARTING has not helped you GAIN ADVANTAGE OVER MR MARKET, or given you clairvoyance enough to find TRADING NIRVANA…” Suddenly Motti chokes and starts to turn blue under Vader’s spell. VADER: “I find your lack of faith disturbing.”
January 31st, 2008 at 11:08 am
v838: J-Chart wants $30 upfront plus $60 for the first *symbol* I believe, which makes it a pretty steep sevice — unless you only trade one or two things.