Nov. 6, 2006 Market Thoughts???

[Soultrader 12]

I was gone for the day and looks like we missed a nice trend day. On the market profile chart the YM formed a P profile. During a downtrend this can indicate a short covering.

 

On the daily charts however, price looks as if it bounced of the trendline.

 

Are we seeing a continuation of the trend? Or was today a short covering?

[torero 10]

I pointed out in the chat room was a double-bottom breakout early in the morning and confirmed on ER2. Target is 771. After that, no idea.

 

You can see from this chart also there was a bullish divergence on Force Index made on the 2nd bottom. Price is king and volume is queen! Long live the king and queen!

 

[Soultrader 12]

Hey Torero,

 

Where did you get the force index on TS?

[torero 10]

Hey Torero,

 

Where did you get the force index on TS?

 

Yes, no need to search for it. I'm attaching it here. It might need a better place in this forum though.

FORCE-INDEX.ELD

[Soultrader 12]

Thanks Torero. Ill add a new thread in the indicators forum. Did you code this yourself? Would you happen to have a description of what this does as well? Also.. I want to ask you a question on the settings. If I am using a 233 tick chart would you recommend making the setting lengths to around 5-6? Thanks

[torero 10]

I didn't write it but not too difficult. It was taken from Alexander Elder's book "Trading for a living."

 

Best way to explain it is showing the formula itself:

 

Volume * (Close - Close[1])

 

This is similar to momentum indicator except it adds volume as an equal importance. Basically, the difference of the close of yesterday (or bar) and the close of today multiply by today's volume (interchange day to bar or vice versa). So the movement of the price with that volume tells how much impact volume had in moving price bar to bar. The bigger the movement, the higher reading the indicator will show, provided the volume remains the same. If the close stagnates, the indicators will show a small reading.

 

The divergence happens when either volume dries up while the price is moving in a steady pace or price difference was miniscule while volume remains the same. So from the previous chart I showed, prices reached the same level, but volume was diminishing. Or that the prices are stagnating producing more bars than necessary to form that 2nd bottom while volume remain the same. What can we infer from that? Lots of volume couldn't push prices further down for the 2nd hypothesis. The answer to 1st hypothesis is that prices was being pushed down by low volume. These 2 answers usually match with the common TA knowledge regarding volume.

 

I find the volume bars on the bottom of the chart very difficult to read, and volume average line doesn't help much either. Using force index averages out the volume and identifies divergence much easier.

 

Hope I explained it as well as Elder did (I don't have the book in front of me so had to use my own interpretation of it).

[Soultrader 12]

Thanks Torero.. I am aware of the indicator from Elders book. If you dont mind I would like to use your comments for the indicator description I plan to post in the custom indicators forum.

[torero 10]

no problem. you have my blessing.

[protrader 10]

looks like a retest on lighter volume, going down

?