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How do you determine a breakout from a false breakout?

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Breakouts are easiest to confirm if you trade a daily timeframe. A close above the breakout level and strength into the close would indicate follow through in the days to come. GBP/USD has just (this morning, London) broken above it's previous high so will make a interesting case study of the theory. Can it close strongly? If so, expect follow through.

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I would say I trade 90% futures, 10% stocks.

 

I don't see why the TRIN breakout would not work for stocks. I suggest testing this out first. I use this strategy for futures only.

 

One similar strategy you can use for equities is TICK range breakouts. I know many stock traders who use this strategy. Anytime you have the TICK stuck in a 2 hour range, watch for new TICK highs or lows. The setup is to go with the TICK breakout.

 

I haven't used TRIN before because for some reason I can't gague its reliability. Its formula might be the inverse of price but its not an exact inverse relationship. Where charts show a trending pattern the TRIN often is flat looking. How do you interpret a flat looking TRIN? Furthermore does this make the TRIN a less reliable indicator? I'm in 2 minds about the TRIN myself.

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I haven't used TRIN before because for some reason I can't gague its reliability. Its formula might be the inverse of price but its not an exact inverse relationship. Where charts show a trending pattern the TRIN often is flat looking. How do you interpret a flat looking TRIN? Furthermore does this make the TRIN a less reliable indicator? I'm in 2 minds about the TRIN myself.

 

Here's the correct answer about the TRIN, directly from the fellow who developed it many years ago, Richard Arms:

 

http://www.armsinsider.com/education/whatistrin/armsindextrin.asp

 

http://www.armsinsider.com/education/whatistrin/whatistrin.asp

 

Rather than give you anecdotal info about what its formula "might be", I figure you may as well find out yourself straight from the source.

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VIX-TRIN.jpg

 

I know I wasn't asked, but my 2 cents is I prefer the VIX. TRIN often moves range bound where VIX tends to move more with the market (though inversely). The above actually shows the exact same days and time frames on both VIX and TRIN. You tell me what you see better through. ;)

I do use the TRIN to look for extremes (2.0 and .6)

 

$UVOL_$DVOL%20Comparison.jpg

 

This is another tool I use to look for false breakouts. You can see how the up or down volume reacts to the range breaks.

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thanks MC....

 

how do I get the Uvol compared to Dvol on my NT charts?

 

Also...how do I get the TRIN or the VIX on my NT charts?

 

I dont seem to have those indicators?

 

thanks for the help.

.

.

 

I haven't used Ninja since a demo way back.

What's your data feed? You need to check with the data provider to see what their tickers are for internals, assuming they give you them.

 

I run Think or Swim for those charts. Free data and platform with an account of $3500 or more. They give internals, stocks, options, futures, some forex. I really like the setup though it's no where near as customizable as NT is. :(

 

I really miss my Tradestation platform, though as a broker I was not happy with execution.

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VIX-TRIN.jpg

 

I know I wasn't asked, but my 2 cents is I prefer the VIX. TRIN often moves range bound where VIX tends to move more with the market (though inversely). The above actually shows the exact same days and time frames on both VIX and TRIN. You tell me what you see better through. ;)

I do use the TRIN to look for extremes (2.0 and .6)

 

$UVOL_$DVOL%20Comparison.jpg

 

This is another tool I use to look for false breakouts. You can see how the up or down volume reacts to the range breaks.

 

Nice method to measure market climate... very nice... once again proxy data giving very good insight into whats going on... cheers Walter.

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MC, can you show us some charts of various days with this up and down volume compared and some index below so we can see some performance of this aproach... looks very nice... makes a lot of sense... having too similar volumes would call for a choppy day, same its the oposite... cheers Walter.

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MC, can you show us some charts of various days with this up and down volume compared and some index below so we can see some performance of this aproach... looks very nice... makes a lot of sense... having too similar volumes would call for a choppy day, same its the oposite... cheers Walter.

 

For you...anytime. :)

 

I believe you used to use Advance/Decline. I run that as well as the UVOL setup here. I run TRIN for the extremes and VIX for an inverse look at the markets. Price action still rules, but these give a good glimpse into the health of the markets IMO. :cool:

 

UVOL-DVOL-INDU.jpg

 

So we can see here nothing but price action is always 100% correct, otherwise we'd all be rich. But if you look at UVOL/DVOL expansion or contraction in relation to each other you can often get clues on which is the right side of a trade. If you have a bigger chart I'm sure the moves on the indices are even more clear in relation to this. I had to have things somewhat scrunched up to get it to post and capture right.

 

 

Added---

Notice Thursday. I just saw something I didn't catch before.

Wicked divergence, basically hidden selling. So you have UVOL smashing DVOL all day but most the day was consolidation. And it ended with a surge of UVOL but very light price action. So there ya go, there's another use for this that I'll add to my bag o' tricks. ;)

 

Enjoy

Edited by MC

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Very nice Mike ¡¡ I attach one of the posible readings of "trend determination by up/down vol comparisson"...

 

attachment.php?attachmentid=7033&stc=1&d=1213184631

 

nice and clean trend definition... maybe the uvol bars you want to make them all green... and add a 4 sma to the index and you got a little system, can enter each time you swing the sma on the direction of the UDVC trend... wouldnt that be cool ? cheers Walter.

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Very nice Mike ¡¡ I attach one of the posible readings of "trend determination by up/down vol comparisson"...

nice and clean trend definition... maybe the uvol bars you want to make them all green... and add a 4 sma to the index and you got a little system, can enter each time you swing the sma on the direction of the UDVC trend... wouldnt that be cool ? cheers Walter.

 

You're a crazy, crazy chimp Walt. ;)

You gave me the motivation to do the chart justice. Click refresh and you'll see a much better annotated chart, I should have annotated in the first place but it was late.

 

Think or Swim is somewhat limited as is my programming knowledge. I don't see any option to make uvol all green since it's the primary ticker. Ninja or others would be simple to change over. I'd also love to see someone show the sma on the index, I have no overlay ability on subcharts. :(

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MC - What exactly IS "Up volume" and "down Volume"?

 

I.e. How is the broker calculating this?

 

Is it: If a trade occurs, and price at T+0>T-1 = Up volume? I.e. an "up tick"? and vice versa for Down volume (a "down tick")?

 

Cheers

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MC - What exactly IS "Up volume" and "down Volume"?

 

I.e. How is the broker calculating this?

 

Is it: If a trade occurs, and price at T+0>T-1 = Up volume? I.e. an "up tick"? and vice versa for Down volume (a "down tick")?

 

Cheers

 

It's NYSE advancing volume to declining volume is all I know. I presume it's volume taken and added on the advancing issues and then the volume added on declining issues which I also run a comparison for. Maybe the below link gives some insight to the uvol/dvol thing?

http://finance.yahoo.com/advances

 

No idea how it's calculated to be honest. I'm a simpleton and am trying to keep it that way. ;) Like Walt's currency thread, I really don't care much about the why it works, only that it's working and repeatably. :)

I suck at math and equations so I'll be of no help there.

Edited by MC

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I tell you Mike, I like to see this crossovers between the u/d vol... can you try using a 1 min time frame ? thanks Walter.

 

UVOL-DVOL-$DJI.jpg

 

Here ya go Walt. 1 Minute, I can only really do 1 day to be able to keep it viewable. Hopefully this gives enough of what you were looking for. :)

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Excellent... this croses work nice ¡¡ just taking those would be good enough to make consistent good profits... basicly the concept is that there is a greater amount of volume on the seller side than the buyers side, thus making the bears the kings... using some simple moving averages to stay inside the whole move or some keltners as well its good enough... 1 min looks nicer, more specific timing... Can you start a thread on this MIke and keep a track of this crosses so we can prove on lets say 3 months from here that this is a good solid strategy to feed a regular family... maintain the mecedes and pay the hyatt suite... trading can be so simple, we humans just make it dificult... cheers Walter.

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Excellent... this croses work nice ¡¡ just taking those would be good enough to make consistent good profits... basicly the concept is that there is a greater amount of volume on the seller side than the buyers side, thus making the bears the kings... using some simple moving averages to stay inside the whole move or some keltners as well its good enough... 1 min looks nicer, more specific timing... Can you start a thread on this MIke and keep a track of this crosses so we can prove on lets say 3 months from here that this is a good solid strategy to feed a regular family... maintain the mecedes and pay the hyatt suite... trading can be so simple, we humans just make it dificult... cheers Walter.

 

I'm actually going to be having surgery on my arm shortly and can't commit to even that amount of work right now. :(

 

When I'm all recovered depending on my work situation then I can commit more time for the effort.

 

I will start a thread (great idea) and see what I and others can contribute.

 

:)

 

added---

http://www.traderslaboratory.com/forums/f34/nyse-up-volume-uvol-down-volume-4019.html#post39886

Edited by MC

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This post is in reference to Soultraders post #4 or #5...just wanted to show a chart that may look like what that post was mentioning.

 

Before it starts sounding like Im hard core Trin Breakout Trader...let me say the following.

 

Primary Im a price action trader and I dont stare at the internals all day long.

In fact I can trade without them just fine and do so 95% of the time. The only internals I have on my screen are $Trin and $VIX(Not very good at using Vix).

I take my Q's from price action and my primary analysis is based on price action. In short I need to see something in price action to make me look at the Trin and not the other way around.

 

 

....may need to zoom to see the chart clearly, sorry about the size. Also Im showing the Trin on 2min only because of size restrictions, else it would be same time fram as the YM chart.

 

Regards..

Trin...thumb.PNG.b80736da2f176eb07eb7dff6e39063c3.PNG

Edited by sep34

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^^^ Yes. But good luck on finding a quality resource that can teach you how to do it properly.

 

I spent the better part of f3 months trying to learn how to read tape.

 

The only resources I found were:

 

Trade The Markets (Huebert used to do tape reading videos)

Traders Laboratory (Soultrader has a video or two on it - originally how I found this place!)

 

While both give good info I was never able to adapt it to my own trading because it requires a lot more interpretation that I wanted to give it. I like finite rules in my trade plan because it helps me perform better when real $$$ is on the line and keeps my consistency rock solid.

 

For others that may be the complete opposite and tape reading may be something they want to look into more.

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