Low Volume Breakout Trade

June 4, 2013 at 7:34 pm Leave a comment

Today, by a conversation, I got reminded of a trade setup, I do not often refer to; however, it is very powerful. A couple of years back in New Jersey, I got to know a retired NYSE floor trader, who traded stocks and was learning how to do this with online tools. He surely had many stories to tell and when I asked him, which trade gave him the highest probable return, he said: “Low Volume Breakouts”.

Asking him for the happening, he explained how the floor got quiet and then at one point the selling or buying started and he went right with the commotion. This sure does not help us as private investors, and the commotion on the few floors, which are left, is not really an indication for the direction to take. Surely I tried listening to the “Squawk Box” but it is annoying – “62 and a half, a half, a half” – and does not lead to any good trades.

Hence, the challenge was to translate the actual happening into an algorithm on the volume development over time. The key question was, what is low volume and in respect to which time unit?

First, we needed a natural model and a referring mathematical model to measure when such a situation occurs.

Signal Transmission gave it to us:

Signal Transmission

We know those signal curves from the radio as FM (Frequency Modulation – lower sketch) and AM (Amplitude Modulation – upper model).

After hundreds of iterations, the algorithm was found to compute this trade situation and it now highlights this trade situation by a yellow volume bar on the NeverLossTrading Top-Line Chart.

SPY: Low Volume Breakout Trade (Yellow Volume Bar, Circled on the Price Chart)

SPY Yellow Bar Small Example

Check for the yellow volume bars and watch the NeverLossTrading_Wave_Indicator, which measures the price move, like and Oscilloscope. Observe the relations well and you will see how the Yellow Volume Bars occur right prior to a price move and provide us with wonderful trading opportunities.

For our trading, we mark the high and low of the Yellow Volume Bar Price Candle and trade the Low Volume Breakout to the up- or to the downside. All price bars are altered by algorithms: Colored bars highlight institutional activity. Gray bars occur on average volume.

This is just a little trade, you can learn with NeverLossTrading.

Check out our offering: http://www.neverlosstrading.com/images/Mentorhsip%20Programs%20%20Overview%20Large.png

If you are serious in learning how to trade like this and much, much more: contact@NeverLossTrading.com for a personal consulting hour.

Entry filed under: Investor Education, Price Prediction, S&P 500, Technical Analysis. Tags: , , , , , , , .

Plan Your Trade and Trade Your PLan Trading High Volume Moves

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