Conflicting indicators (or are they?)

Hello,

I've done some reading of late regarding the apparent importance of Volume when looking at entry and exit points. What I have seen seems to indicate that that measurements of Volume can be very important, perhaps the most important indicators.

See the attached image. Am I reading things incorrectly or are the Volume indicators going against what the MACD, Momentum and RSI indicators seem to be saying? The latter three seem to be telling me that things are looking up for this stock, but the decrease in recent Volume and the Oscillator appear to be saying that there is a lack of support for the uptrend to continue.

TIA

IA

crypto said:

but the decrease in recent Volume and the Oscillator appear to be saying that there is a lack of support for the uptrend to continue.

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Actually the way I read it a stock that goes up on low volume suggest a lack of supply. Which is 180 degrees from your reading.

G'Day crypto;

a couple of pointers, fwiw:
MACD, RSI, Momentum are essentially measuring the same thing. You can use different time frames, but that would merely mean you're planning for different holding periods and associated risk profiles.

With that in mind, your three momentum indicators, pointing upwards, should not be counted as three positives, against one negative, but only as 1:1 - suggesting uncertainty and indecision. (I am not familiar with the exact algorithm of IC's Accu/Distrib indicator, so I won't comment on it possibly being the 4th momentum derivative.)

One thing I recognised very early in my t/a training: If I use too many indicators of one factor, the result will be skewed. Therefore, I selected only one indicator of each class and stuck with that choice across the entire spectrum. The three categories that - IMHO - describe the strength of a trading trend are -

• momentum
• volume
• volatility.

Momentum describes the direction in which the price is moving; associated volume tells the mass behind a move; and volatility measures the risk of success or failure - depending on whether the momentum is headed in my direction or works against me. When these three are all in agreement, the chances for a successful trade are at the highest. Never 100%, but changes will show up early enough to provide reasonably early warning for me to activate Plan B.

Trembling Hand said:

Actually the way I read it a stock that goes up on low volume suggest a lack of supply. Which is 180 degrees from your reading.

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And in perfect harmony with mine!

I've done some reading of late regarding the apparent importance of Volume when looking at entry and exit points. What I have seen seems to indicate that that measurements of Volume can be very important, perhaps the most important indicators.

Click to expand...

And here is the RUB.

From 15 yrs as a VSA (Volume Spread analysis) exponent I've learnt a lot about volume.
The first thing you do is throw EVERYTHING you THINK you know about volume and what you read in books and start on the long journey of actually being able to read volume INCONTEXT to a chart.

Pixel is also correct in his observation re indicators.

Thanks for the quick replies

Trembling Hand said:

Actually the way I read it a stock that goes up on low volume suggest a lack of supply. Which is 180 degrees from your reading.

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OK. What about the Oscillator? According to this quote, its direction south indicates that the current trend is heading for a reversal:

(From the Investopedia website)

A positive value suggests there is enough market support to continue driving price activity in the direction of the current trend. A negative value suggests there is a lack of support, that prices may begin to become stagnant or reverse.

Click to expand...

Or am I mis-understanding what the Oscillator is saying?

@Pixel

Thanks. I always found it quite re-assuring to look at Momentum MACD and RSI, especially when the were all looking similar. It kinda made me think that I was on the right path regarding predicting where a stock was heading.

But now I know why

Volitility is next on my list of things to come to grips with. Right after I sort out my understanding of Volume.

@tech/a

Thanks. I actually had no real idea of the importance of volume until very recently. I guess then if the best way to come to grips with it is by looking at it in context, then I guuess I will be back here asking more questions.

While I slowly am beginning to understand how these indicators can be used to predict movement, I am still not certain about predicting the length of a move - ie, I guess this would be identificotion of Resistance and Support points (and others??).

Thanks again for the replies. I don't say much here, but I do try to read as much as I can.

EDIT: BTW, does anyone have any thoughts on the Accumulation Distribution measurement? Are divergences in its movement from that of price good indicators of trend change? As stated here: http://www.incrediblecharts.com/indicators/accumulation_distribution.php

crypto said:

OK. What about the Oscillator? According to this quote, its direction south indicates that the current trend is heading for a reversal:

(From the Investopedia website)

A positive value suggests there is enough market support to continue driving price activity in the direction of the current trend. A negative value suggests there is a lack of support, that prices may begin to become stagnant or reverse.

Click to expand...

Or am I mis-understanding what the Oscillator is saying?

Click to expand...

That is one of the many problems with an indicator you just pull out of the bucket. You actually have no idea what it is, how it is constructed and how useful it actually is as a signal. Its there so you use it just because, well it is there!

To me it looks no more than some derivative of a moving average of volume. Less use than useless.

crypto said:

While I slowly am beginning to understand how these indicators can be used to predict movement, I am still not certain about predicting the length of a move - ie, I guess this would be identificotion of Resistance and Support points (and others??).

Click to expand...

"Prediction" is strong anathema to me. Athena Starwoman and Carlotta Tarotta make predictions. What T/A allows me to do is plan for two or more possible evolutions; and with the benefit of experience, it can also provide a rough idea about which of several outcomes has the higher probability.

If by "length" you mean the time that a chart maintains its trend, I suggest extra caution. It's hard enough to determine likely support, resistance, and turning points on a chart. Trying to guess the timing as well would add an unnecessary extra level of complication to the process.

Yes, I know that puts me at odds with disciples of Gann and Elliott. A dear late friend of mine was convinced he could find Gann cycles in his charts. And to some extent he could - mainly using historic charts over appropriate time frames: months or weeks or days, also varying whether weekends counted as days or not.
The crux with these cycles lies in the fact that they're most clearly visible when retro-fitted: "Look! Here we have 144 days between this Low and that High! And there is another proof: 144 weeks between a High and a Low!" Sorry, but those are not cycles. I have run scores of tests over decades of datasets with all imaginable periods. If there really were a periodicity between Lows and Highs, patterns of such cycles should show. But they don't.
Some obvious exceptions: If you have a stock that pays a good dividend every 3 or 6 months, you will find increased activity between their ex-div dates. For such stocks, if nothing else affects their trade performance, it will be rather easy to fit 13-week cycles over the 4 quarters of a year. And 13 is even a Fibonacci Number!

Conclusion: While price is frequently determined by historic support, resistance, and trend lines, the timing of breakouts and breakdowns is dependent on a vast number of different, company-specific causes. Some of these may well be cyclic: Quarterly reports, annual or bi-annual dividend payments, monthly RBA meetings and ABS releases, ... But the effects of external events: FX fluctuations, weather events, political worries, are overlaying such cycles and combine to a rather random distribution over time.

Trembling Hand said:

That is one of the many problems with an indicator you just pull out of the bucket. You actually have no idea what it is, how it is constructed and how useful it actually is as a signal. Its there so you use it just because, well it is there!

To me it looks no more than some derivative of a moving average of volume. Less use than useless.

Click to expand...

I am not using it. Rather I am am attempting to learn about it - to see if it is worthwhile utilising. Pulling it out of a bucket and having a play with it is nothing more than that.

@Pixel

Conclusion: While price is frequently determined by historic support, resistance, and trend lines, the timing of breakouts and breakdowns is dependent on a vast number of different, company-specific causes. Some of these may well be cyclic: Quarterly reports, annual or bi-annual dividend payments, monthly RBA meetings and ABS releases, ... But the effects of external events: FX fluctuations, weather events, political worries, are overlaying such cycles and combine to a rather random distribution over time.

Click to expand...

Yep, understood. Yes, and this is why I paper trade only at this time. I cannot see how one can use one form of anylysis to the exclusion of another. Many do though.

crypto said:

I am not using it. Rather I am am attempting to learn about it - to see if it is worthwhile utilising. Pulling it out of a bucket and having a play with it is nothing more than that.

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Simple then - run back tests and you will find that none of them "work". Blindly taking a signal from an indicator is not going to make you profitable. You can waste years putting indicators on a daily chart and seeing what happens and still be nowhere other than making money in bull markets and giving it back in bear/sideways ones.

If you learn how to back test you will be able to see how each indicator works in all markets in a very short period of time.

Prediction? Absolutely! We predict, then we bet. The size of our bet reflects our confidence in our prediction.

If taking a position either long or short is not a prediction, then what is it?

Best,
Howard

howardbandy said:

Prediction? Absolutely! We predict, then we bet. The size of our bet reflects our confidence in our prediction.

If taking a position either long or short is not a prediction, then what is it?

Best,
Howard

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Calculated Anticipation.
If we determine an end point then I believe it to be a prediction.
If (as in discretionary trading) we anticipate a move then exit upon conditions we
also anticipate to be detrimental to our position---then I don't believe we are making a prediction.

howardbandy said:

Prediction? Absolutely! We predict, then we bet. The size of our bet reflects our confidence in our prediction.

If taking a position either long or short is not a prediction, then what is it?

Best,
Howard

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The difference may be only semantics, Howard;

A prediction (Latin præ-, "before," and dicere, "to say") or forecast is a statement about the way things will happen in the future, often but not always based on experience or knowledge.

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I shun the term because it implies the notion of inevitability, as in "Trust me, this is about to happen." Including different probabilities to different outcomes will still allow me to "place a bet" according to the odds and my risk perception. But it includes the awareness that I can be wrong and have a Plan B if it turns out that I'm wrong. Call it humility if you wish. Plato's "I'm aware that I don't really KNOW anything."