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How To Combine Price & Volume Using This LEADING Indicator (TSV Trading Strategies) - YouTube
Channel: The Secret Mindset
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Many traders ignore volume.
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And although volume is a simple concept, it
is difficult to analyze it correctly due to
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inherent challenges in the markets.
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These challenges make it impossible to read
true volume with the standard volume indicators.
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And although most traders are familiar with
price and time oscillators, very few use volume
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oscillators.
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Volume oscillators are uniquely different
than price oscillators.
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Instead of signaling overbought or oversold
price action, the volume oscillator provides
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far more valuable information about what is
going on with the stock price before price
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actually moves.
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This gives traders a leading indicator that
shows the direction of price, breakout moves,
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momentum runs, and bottoms or tops ahead of
price action.
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But there鈥檚 a small problem.
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Most volume oscillators you probably use,
like OBV, Money Flow, don鈥檛 always have
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leading qualities.
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If I have to guess, you probably use average
volume indicators where the average of volume
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is calculated over a given number of past
bars to see if volume is increasing or decreasing
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over that time period.
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And it is okay to look at volume this way,
but you will be missing the most vital volume
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information.
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This isn鈥檛 the best approach to analyze
volume.
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And let me show you WHY is that.
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Volume has inherent distortions which will
lead to a faulty analysis by many traders.
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For example in the stock market (and other
markets to a lesser degree), the opening of
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the day has a multitude of orders that had
built up overnight and all get processed at
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once.
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This large influx of trade volume creates
a major distortion to what is actually happening
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in the market.
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Another distortion is created in the middle
of the day when the majority of market makers
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go to lunch and market activity slows down.
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A third distortion happens at the end of the
day, when traders try to adjust their orders
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before the market closes.
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They may want to be flat overnight or they
might want to get into a trade, but this influx
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of orders at the end of the day is another
distortion to volume.
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Another challenge to using a volume average
indicator is that every instrument has considerably
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different levels of volume.
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For example compare a stock with 40 million
shares per day vs. a stock with 10,000 shares
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per day.
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This vast difference makes it difficult to
read volume from one symbol to another symbol.
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Additionally, if you change from one time
frame to another there will be huge volume
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differences.
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The volume on a 1 minute time frame is much
different than the volume on a 60 minute time
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frame or a daily chart.
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The key to getting past these challenges is
to use the time segmented volume.
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Time segmented volume is the way to get consistent
volume data and eliminate all the volume distortions
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that we discussed before.
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So, Time Segmented Volume (TSV) is a volume
oscillator, and is considered one the best
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volume oscillators ever written.
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Its main advantage is the fact it reveals
large-lot vs. small-lot activity on the market.
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This indicator is similar to on-balance volume
(OBV) because it measures the amount of money
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flowing in or out of a particular stock.
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But with a big advantage.
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Time Segmented Volume is an oscillator that
compares various time segments of both price
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and volume.
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TSV indicator measures the amount of money
flowing in or out of a particular stock.
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The baseline represents the zero line.
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It segments a stock's price and volume according
to specific time intervals.
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The price and volume data is then compared
to uncover periods of accumulation (buying)
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and distribution (selling).
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Time Segmented Volume is a leading indicator
because its movement is based on both the
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stock's price and volume.
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Here鈥檚 the key to why time segmented volume
works: Let鈥檚 start with volume on a 15 minute
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chart and for this example, look at the 10:15
bar.
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Now take the average of only the 10:15 bars
over the prior month and compare that average
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to the current 10:15 bar.
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The difference will give a true reading on
whether today鈥檚 10:15 bar volume is higher
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or lower in comparison to the exact same time
bars over the past month.
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Now when you read the 10:15 bar you read the
price bar against the volume bar.
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For example, let鈥檚 say the price action
shows a larger than normal bar, maybe 2 times
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normal.
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Let鈥檚 say price started out close to the
bottom of the bar with no wick, and it runs
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up and closes close to the top of the bar.
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This means a strong bullish bar, but if you
look down and you see less than average volume,
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then you should be cautious about the price
movement.
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In contrast, if you see 200% percent volume
you鈥檒l know that increased volume was the
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reason for the extra large price bar.
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The key to understanding volume is reading
price action and volume action on the same
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exact bars, using time segmented volume to
give you the true volume information you need,
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and reading the chart to see if price and
volume are in harmony or if they are divergent.
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Time segmented volume can confirm the move,
make you suspect of the move, or can tell
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you if it is the end of the move and if a
likely change in direction is coming.
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In any case, using time segmented volume will
eliminate volume distortions and increase
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your trading edge.
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Now let鈥檚 discuss how to read the Time Segmented
Volume oscillator.
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When TSV crosses up through the zero line,
it signals positive accumulation or buying
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pressure.
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This action is considered bullish.
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Conversely, when TSV crosses below the zero
line, it indicates distribution or selling
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pressure, which typically precedes a move
down in price.
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An important aspect to look for when reading
TSV is a contradiction of trends between price
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and TSV.
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Look for positive or negative divergences
between price and TSV in order to determine
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potential tops and bottoms.
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Several consecutive divergences increase the
reliability factor in trying to pinpoint price
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reversals.
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For instance, if a price is making successively
higher highs while TSV is making successively
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lower highs, this would constitute a series
of negative divergences.
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This would be a leading indication of a possible
top.
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In this case, the TSV indicator exposes the
distribution pattern of the big market players
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quietly selling the stock even while smaller
lot buyers push price up to the final high
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before the correction.
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If the price is making successively lower
lows while TSV is making successively higher
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lows, this would constitute a series of positive
divergences.
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This would be a leading indication of a possible
bottom.
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In this case, the TSV indicator reveals the
accumulation pattern of the big market players
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quietly buying the stock even while smaller
lot sellers push price down to the final low
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before the rally up.
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This is what I call volume divergence trading,
which is more powerful than regular divergence
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trading.
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You see, the big problem with most technical
traders is that they rely too heavily on price
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and time indicators and don鈥檛 evaluate volume
indicators sufficiently.
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In the current market place however, using
only price and time based indicators isn鈥檛
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enough for gaining consistency in the long
run.
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Nowadays with the institutions using many
variables of specialized orders that control
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price, volume is even more critical to use.
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Price no longer is the most important indicator.
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A combination of Price, Volume, and Time indicators
offer the most reliable, consistent, and leading
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indication of how price is likely to behave
in the near term for short term trades.
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So here are other examples of positive and
negative divergence trades, using the Time
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Segmented Volume oscillator.
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Using an exponential moving average (EMA)
with TSV provides an easy-to-read crossover
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signal prior to a breakout move.
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This is a huge advantage for technical traders,
especially during choppy sideways markets.
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Being able to see the breakout crossover signal
on TSV will allow you to get in ahead of the
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breakout.
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When the moving average is above the centerline
this is a sign of accumulation and below the
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centerline, a sign of distribution.
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So, for an upside breakout for example, pay
extra attention to the TSV oscillator.
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If you see a period of accumulation, meaning
the moving average above centerline, and you
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see a new high in the time segmented volume,
at an important area of resistance, that鈥檚
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a high probability signal that the breakout
could be valid and a future upside move could
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follow, like in this example.
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Keep in mind that as you increase the value
of the moving average, the result is a smoothing
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effect.
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However, there is a trade-off.
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As you increase the length of the moving average,
the indicator becomes less sensitive to daily
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fluctuations.
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And as a result, the indicator will have a
greater tendency to lag price.
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So if you've tried some of the conventional
ways of day trading breakouts and they aren't
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working for you, the Time Segmented Volume
will serve you better.
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Here are other example of breakout trades,
using
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the TSV oscillator.
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