What indicator would you suggest?

[mEmmerrr]

I am trading on stocks in down/up trends, and entering on a 2 or 3 day pullback from a new 3 month low.

I want to use a volume indicator to help tell the difference between a fully backed trend reversal, or a short term 'spike' that does not have much volume to go with it, thus to then enter.

I was thinking OBV but I cant really seem to get my head around what it is telling.

Any ideas?

Cheers

 

[4rex4life]

I heard that OBV works fine on stocks and it makes no sense on forex.... However, I never trade stocks... but for forex, it is definitely useless

 

[Grey1]

I am trading on stocks in down/up trends, and entering on a 2 or 3 day pullback from a new 3 month low.

I want to use a volume indicator to help tell the difference between a fully backed trend reversal, or a short term 'spike' that does not have much volume to go with it, thus to then enter.

I was thinking OBV but I cant really seem to get my head around what it is telling.

Any ideas?

Cheers

And who told ya short term spikes does not have volume to go with it

grey1

 

[mEmmerrr]

Fair point, it was more of an assumption than anything else.

That is part of the problem, I am fairly unclear as to how the volume side of things should be interpreted.

 

[Grey1]

And who told ya short term spikes does not have volume to go with it

grey1

The difference between a FULLY BACKED TREND REVERSAL and a short MOVES or as you put it SHORT TERM SPIKES is in not in the amount of volume because a fully backed long trend can also happen in very LOW volume,,,




Example 1

lets say you put your house for sale and no one turns up ( LOW VOLUME ) what is going to happen to your house price.... going up ? It goes down steadily and constantly until price is reasonable and buyers move in

Example 2
Short selling was stopped on some financials,,, Did the stocks stop falling ? Nope

The secret of sustainable trend is not in volume but it is in CYCLES .
The more cycles nodes gang up,, the longer the trend and the longer the trend the more attraction of the volume,,, In another word,, cycle matching attracts volume in later stages of the trend and hence pushes the price up or down ,,

Example,, ( below is the cut and paste from dictionary )

Snowball effect is a figurative term for a process that starts from an initial state of small significance and builds upon itself, becoming larger (graver, more serious), and perhaps potentially dangerous or disastrous (a vicious circle, a "spiral of decline"), though it might be beneficial instead (a virtuous circle).


This is exactly how trend starts and as it gets bigger it grows bigger and attracts volume,,,

Birth of a new trend does not need volume ,,,

Grey1

 

[0007]

.........

The secret of sustainable trend is not in volume but it is in CYCLES .
The more cycles nodes gang up,, the longer the trend and the longer the trend the more attraction of the volume,,, In another word,, cycle matching attracts volume in later stages of the trend and hence pushes the price up or down ,,

..........

Birth of a new trend does not need volume ,,,

Grey1

Agree. My experience has shown this to be true.

 

[tonybabb]

volume not reliable

Fair point, it was more of an assumption than anything else.

That is part of the problem, I am fairly unclear as to how the volume side of things should be interpreted.

I'm not sure you can reliably use volume as an indicator during a retracement in an upward or downward trending stock. Although high volume at the end of a pullback can be a supporting indicator.
There are a couple of things I look for that have helped me:
1) Fibonacci calculated support/resistance levels are helpful - in short a pullback to approximately 38% of the previous upward or downward move, generally this can take 3 - 5 days.

2) A pullback to the 20 period simple moving average often precedes a resumption of the original trend.

Always look for confirmation of the resumption of the original trend, this could be exceeding the previous day high/low or if you're more aggressive then exceeding 50% of the previous days range.

Of course all this assumes a norml market, current volatility is not normal.