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TVO Market Barometer 3-5: Low volume is just waiting to exhale

Last week’s TradersExpo in NYC was the place to be for all kinds of traders and investors alike. Where else can you hear from industry experts like Tom Sosnoff, talk to brokers about the latest products, and experience the sights and sounds of Times Square, all in one trip?

One of the highlights for me was meeting legendary trader Larry Williams, who turned out to be quite modest and unassuming (as most of the greats usually are). I was just hanging around the TradeStation booth and he actually came up to me and introduced himself. His book Long-Term Secrets to Short-Term Trading inspired me to use the Kelly Criterion for position sizing with the TVO System. When I mentioned how I modified his approach to the formula, his response was “that’s good because I was a little young and naive when I wrote about that.”

And just when I thought there was nothing more to learn about volume, Tom O’Brien’s talk shed some light on some simple and basic volume concepts that are often overlooked, like how price and volume happen in cycles and not necessarily in tandem. A real-life example that just happened is the declining volume of the rise of the major indices over the last 2 sessions. Bears are excited about it and bulls are scared, but according to Tom’s analysis the opposite should be true and that is… After a heavy volume move, the natural tendency is for an equal move in the other direction on lighter volume, almost as if the market just needs to take a breath.

Our own Total Volume Oscillator (TVO) has just dropped below zero, which does merit some caution, but until February it was above zero since last September (literally holding it’s breath the whole time). Whether things are setting up for another leg down or we’re just taking that much needed breath remains to be seen. But here we are back at the 50 day MA, and until it’s the bulls turn to exhale, the bears may want to step out of the way for the time being. -MD

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