subject: Volume Patterns – One of the Confirming Indicators for Market Trends [print this page] Volume Patterns One of the Confirming Indicators for Market Trends
Volume patterns alone cannot be used for trading, but instead are better used with other confirming indicators like Sine Wave and Momentum Indicators. They can and should be an essential part of confirming a change of trend and signaling entry points for any Emini futures trader.
Professionals trade in volume, or bulk; amateurs trade in smaller increments of singles or doubles. So, by analyzing average trade size you can directly identify professional and amateur activity. One volume patterns program, the Better Pro Am, uses an algorithm to analyze average trade size.
Identifying Market Tops & Bottoms
Market tops and bottoms can be identified by analyzing professional trade volumes. Because they trade in bulk they need to buy new lows and own down bars, and sell new highs and own up bars. Amateurs do the opposite of professionals, chasing trends and buying breakouts or selling breakdowns.
By looking for these particular volume patterns of professionals and amateurs you can get a sense of where the professionals are entering trades and taking profits. Looking for professional and amateur activity at price extremes allows you to watch and see how price reacts in order to determine trend changes.
This is not an easy approach to trading and it takes practice and patience, but it will be well worth the time and effort. Ignoring price congestion activity and focusing on price extremes makes things easier.
Better Pro Am includes Four Volume Patterns
The Better Pro Am software includes four volume patters to identify professional accumulation and distribution. These are stopping volume, profit taking, no demand and no supply, and RAMBO.
The first two indicate that professionals are reversing their positions. But, professionals trade in bulk and scale in and out of positions revealing these volume patterns before the market actually reverses. The no demand and no supply volume pattern is often seen at market tops and bottoms. This indicates a lack of buying volume at market tops to push price to new highs, or lack of selling volume at market bottoms. Using clusters of these volume patterns as confirmation for trend changes is common, but not necessarily for entry signals. The fourth stands for Reversal of Amateur Break Out. The logic behind this is that amateurs often fail. Amateurs are always chasing price, entering late and expecting a breakout from congestion to turn into a trend move. Using volume patterns with other confirming indicators will aid your trading experience and profitability.
