Posted on

TVO Market Barometer 4-4: Price is terrifying. Volume, not so much

If somehow, by some twist of fate, you missed the huge gap down at the open on Wednesday (it’s hard to imagine, but give it a try), you might have seen the day’s move up as just a logical continuation of Tuesday’s reversal. But, of course, most folks are pinned to their screens well before 9:30am. If you’re a day trader that’s all well and good, but if you’re holding anything longer than a day (and you don’t believe in torturing yourself), you may want to look into some alternate morning activities once in while… or you can just sleep in.

For the past week, the S&P 500 has been bouncing up and down on the 200 day MA like a little kid on a trampoline, leading investors into believing we’re just one slip away from Armageddon. But if you had no idea what the 200 day MA was and why it was important (again, impossible to fathom, but try), you might think that markets going up and down is totally normal. Many long-term investors would even ignore such market behavior, while swing traders see it as an opportunity.

We took advantage of just that in the last 2 weeks with our HG and Next Day Move strategies. In 5 consecutive winning trades, we captured 3 bounces off the 200 day MA resulting in an overall account gain of over +5%. How do we manage to pull in consistent gains without getting flustered by all the insanity? The answer is volume.

In almost 10 years of trading I’ve seen some pretty terrifying price charts. When you look at volume data, though, it never really looks scary. And when news comes in that most folks think will surely sink the markets, one look at volume will tell you if you should worry or if it’s already priced in (most of the time it’s the latter).

If for some reason price charts were unavailable from now on (yes really unimaginable I know, but give it a shot), you’d be forced to look outside of the box for other ways to read investor behavior. And that’s precisely the kind of thought exercise that could turn everything thing around for you in your trading. If turning your back on the conventional makes you feel like you’re missing out on something, well, then you’re on the right track.

Whether you end up blazing a new path or deciding to stick to the old school, the important thing is once you find what works, stick to it no matter what. Tuning out the noise is not so hard when you realize that when it comes to your process, none of the stuff that gets constantly pumped into your feed really matters.

And once in a while you can always just sleep in. -MD

Want to read more? Join our list. It's free.

For the full rundown on today's active signals and options trades, please log in. Not a Member? Join us today.

To view past positions check out our Trade History.

To find out what the indicators mean, visit our Market Volume Volume Barometer.

To learn more about market volume and how we trade, find us on Twitter (@TradingLicks) and StockTwits!

The indicator descriptions in the above graphic represent general market sentiment. The actual TVO System signals and trades are listed below in the Members Area. To view, please . Not a Member? Join us.