When volume analysis is applied to intraday timeframes, it can be a challenge. What allows you to incorporate a simple mechanical system into the volume analysis process is the SBV (Selling & Buying Volume) Oscillator. This system will trigger a sell signal on selling volume and a buy signal on a buying volume.
SBV Oscillator can be traded with this simple trading system. 4 Simple rules are used by this system. It goes without saying that you should adjust any trading approach (including this particular system) so that it suits your personal trading style. For instance, you may wish to set profit targets, formulate additional rules, apply a stop-loss strategy, etc.
Based on our SBV indicator, 4 simple trading rules are listed below. To show how the system works, the 30% level for the SBV indicator is used for illustrative purposes only.
To trade long:1. Wait for the SBV indicator to advance above minus 30% level after being below that level, then enter a long position;
2. Enter a long position (if are not already long) once the SBV indicator advances above plus 30%
3. Take profits once the SBV indicator drops below plus 30% after being at about that level;
4. Take a loss when the SBV indicator drops below minus 30% if you are in the long position.
The similar four rules are set to trade short:1. Wait for the SBV indicator to decline below plus 30% after being at about that level and then initiate a short position;
2. Enter a short position (if not already short), once the SBV indicator declines below minus 30%;
3. Take profits when the SBV indicator has advanced above minus 30% after being below that level;
4. If short position is opened, take a loss when the SBV indicator advances above plus 30%.
Depending on your personal trading style and risk tolerance, the critical levels you select for the SBV indicator may have to be adjusted. As well as depending on the number of trades you wish to generate within that timeframe, you may select these critical levels based on the timeframe you wish to analyze. In some cases, good results are provided from an SBV critical level of 20%. From the history analysis you may notice that lower critical levels generate more trades. You may find more detailed examples of using this four-rule trading system in different time-frames at
http://www.marketvolume.com/content/samples_sbv/chart_analysis.asp There is an evident relationship between price (i.e., index levels) and volume. An index changes direction when an increase in volume ultimately affects price movement. An index will react with a push lower when volume to the price up-side dominates. The opposite is also true: Prices tend to move higher in reaction, when volume to the down-side dominates. This knowledge allows you to achieve higher profits and to place trades with more confidence.
It is worth mentioning that the basics of this system become part of the professional online signal services, such as
www.options-trading-system.com and
www.qqq-options-trading.com. These services very quickly realized the value of analyzing the volume represented in the SBV oscillator and embedded it into their trading system to generate options signals.
Many online services provides tool for price analysis and only a few of them deliver volume that is suitable for analysis. One of this services is
www.marketvolume.com that is highly recommended as a professional service on the delivery of volume and advance decline indicators.
