New Traders Blog - Price & Volume

Trading Price & Volume

As technical traders your primary tools are trading Price, Volume & Open Interest. During today’s blog we are going to examine the relationship that these three key pieces of information provide us and possible clues or tells to predicting price movement and validating our edge in the market.

For today’s new trader lesson we are going to focus on some very simple formulas for trading price & volume and a combination of both.

As when know from our first module training session technicians study trading price, volume and open interest relationships.

First up some very quick definitions:

Price:

The movement of a security, commodities or index’s price. Price action is encompassed technical and chart pattern analysis. It attempts to find order in the sometimes seemingly random movement of price. Swings (high and low), tests of resistance and consolidation are some examples of price action.

Volume:

The number of shares or contracts traded in a commodity or an entire market during a given period of time. It is simply the contracts that change hands from sellers to buyers as a measure of activity. If a buyer of a commodity buys 1 contract from a seller, then the volume for that period increases by 1 contract based on that transaction.

Open Interest:

The total number of options and/or futures contracts that are not closed or delivered on a particular day.

So to kicks things off let’s assign a + bullish and – bearish values to our three studies to track their relationship:

+ (increasing price and volume or open interest) + bullish

- (decreasing or volume or open interest) – bearish

Let’s now take a look at the relationship between trading price, volume and open interest.

Market conditions

1. Price increasing on increasing volume = bullish. - Underlying activity is that new buying pressure and or shorts are being offset.

Note: Often when we see a strong bearish day where the is aggressive selling and strong bullish spike occur. This is often short covering and can occur very quickly as shorts tighten their stops. We will also see volatile

2. Prices decreasing on increasing volume – bearish. There is new selling pressure and/or longs are offsetting.

3. Price increasing on decreasing volume – bearish. Buying pressure is starting to dry up. A downside reaction is likely, the saying “don’t buy a quiet market after a rise” is our rule of thumb here. 4. Prices decreasing on decreasing volume – bullish. Selling pressure is diminishing. An upside reaction is likely. Don’t sell a quiet market after a fall.

In tomorrows blog update we will be examining the relationship that open interest has on trading price, volume and open interest.

Have a great trading day.

Shane Fry GMT Trading Coach www.globalmarkettrader.com

shane@globalmarkettrader.com Trading Price & Volume

Global Market Trader is a company forging the way forward in trading education and Trading Price & Volume. The company has the perfect mix of Professional trading experience over 16 years of system development and trading education. 5. New Traders Post – Traders Skill Set – Learning to Trade Key Words – trading skills It really makes no difference whether we are day trading, swing trading, or scalping- there are certain fundamental trading skills that each trader must master. Skill-building activities will help you sharpen your ability to make money consistently trading the markets. I have listed some of the trading skills I believe to be critical in your future success as a trader:

1. Patience

This is probably one of the most challenging trading skills to master and control. It is very easy to get caught up in the moment and let adrenalin overpower your internal control. There are certain physiological processes that occur when we are in a trading environment. Identifying, acknowledging and controlling our responses during our live trading sessions will help to maintain patience for those higher probability set-ups.

2. Simplification

If you are waiting for the moon, stars and seven different constellations to align before you enter a trade chances are that your system may be a little too complex and this can really hamper your confidence and ability to execute trades correctly. Try to keep this simple and logical when it comes to trading. You would be surprised or even shocked at how simple some of the best systems are.

3. Planning

Our ability to properly plan out our trading day is critical in maintaining consistency and success. By planning our trades and committing these to a daily routine we then have a measurable approach to our trading. Trading without a plan is like taking a drive with no map in an unfamiliar part of your town or city. Imagine doing this every time you go driving somewhere new……what a waste of time and money and you will quickly want to give up your dream

4. Ability to stay focused and execute a trading plan Stick to a Trading Plan, execute and review again and again and again!

It sounds boring doesn’t it!

The focus and discipline to stick to your trading plan is one of the absolute keys to successful trading. . Obviously your plan may change slightly from time to time to respond to changing market conditions; however your plan is really critical.

Your plan needs to be specific, achievable and measurable. 5. Know Your Numbers

Trading is a business based on numbers so it critically important that you are good with math. You should be aware of the most important statistics driving the profitably of your trading system and ultimately your trading account.

Don’t get caught up in thinking that a high win rate is the pot of gold at the end of your rainbow. Look closely at the risk to reward of your system or strategy as this will determine whether you will be trading with an “edge” in the market.

Also don’t forget about the cost to trade and breaking down your numbers.

6. Keeping Your Emotions Under Control We touched on this earlier and it deserves a little more information. The emotional challenge of trading is probably the biggest hurdle you will face as an aspiring trader looking for consistent success. Even if we have all our other skills in place, maintaining your mental toughness and focus in the market is an ongoing challenge.

Trading requires a different set of skills and it challenges our core beliefs about money and time. It presents both winning and losing as an everyday possibility despite our preparation, planning and edge in the market. We are reminded of the fact that daily we have no idea what could happen next. This uncertainly and lack of a performance guarantee is challenging and almost impossible for most people to cope with without breaking there core trading rules or searching for a system or strategy with more of a winning certainty.

However, the reality is that we know real-world trading is just a numbers game. Each trading day will give us a share of winners and losers. Our job or task or even goal is to follow the plan with flawless execution, review and repeat. If we perform according to our edge then the law of probabilities will be on our side.

7. Ability to read the charts

We need to be able to develop our skill in reading charts/markets and determine possible trade set-ups based on our trading plan/strategy. It is critical to also be able to read the market bias before entering trades. Bullish, bearish or neutral or sideways price action can help to add to our edge in the market. Any advantage we can get is going to help our overall performance.

8. Accountability You will definitely want to build this in as one of your skills or at least part of your process. While most of us are excited by the prospect of no longer being told what to do and when to do it by a boss. That is exactly what we need in our trading, particularly as a new trader. Avoid this part of your trading skill building process at your peril.

9. Build a Great Team

Team building will definitely be high on your list. Trading requires a solid team which may include, broker, data provider, coaches, accountant and a trading buddy. The more effort you put into building a solid team the more time you will be able to concentrate on your trading and success.

One final comment Many of us starting out get propelled into believing certain things about the market that just a simply not true. This is the challenge we all have with our “beliefs”. You need to treat what you hear and see as just an opportunity to challenge and confirm as fact.

Remember time is our most precise commodity so the sooner you simply you’re trading and focus on your developing your key skills the faster your success will come.

On a final note I have briefly mentioned it through the article but money management and trade psychology, no matter how long you have been trading, this should really be your strongest traders skill set. This is where the real gold or holy grail of trading can be found. All the best.

Shane Fry

Trading Coach www.gmtfutures.com shane@gmtfutures.com

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