Volume patterns have an important effect on many trading systems. Volume measures the interest in a move, it shows how many people are interested in the current price pattern and how they are voting with real money. Rather than listen to the talking heads on the business channels discuss their opinions of what is going on, it is better to look at the volume patterns and see what people are actually doing with their money.
Serious traders will go through a learning curve as they study market behavior and how their trading systems function. They will have times when they run into situations that have not been experienced or researched and they may be unsure of what to do. This is normal, it is the price of admission to the trading business. My general rule is that when I am unsure I close the position. It is hard to go broke taking profits so my focus is on needing a clear reason to stay in a position, not wondering whether or not I should get out. If there is no clear reason to hold I take profits and move on to another trade.
When trading I am not holding out for the perfect trade, there is no such thing. Trading is about managing risks and I use the current market conditions to determine how many trades to be taking and the appropriate position sizing to use. Setups with more room to run are prioritized above ones with little room to run. Setups triggering on stronger volume compared to the previous days volume are prioritized above ones with lower trigger day volume. Setups with shallower pullbacks are prioritized above ones with deeper pullbacks. I then look at the setups that are triggering andstart from the top of the prioritized list and work down until I run out of setups or fill the number of positions I am interested in.
When I go to a trading conference I often ask how many traders are bullish, a number of hands go up. I then ask how many traders are bearish and more hands go up. I then ask how many traders do not care if the market is bullish or bearish, this usually generates some chuckles and a couple of hands. The serious traders do not care whether the market is going up or down, they know it is out of their control and they have tools to deal with both conditions so it does not matter. The traders laughing at this question usually have interesting stories of significant drawdowns from guessing incorrectly. Try not to be bullish or bearish, just focus on where the markets key trend lines and support/resistance levels are and adapt to what the market is actually doing.
Sometimes I will see traders trading weaker patterns because they have had a good winning streak and are ‘using the house’s money’. Nonsense, profits are yours there is no house. Each trade must stand on it’s own. Do not be tempted to trade weaker patterns after a winning streak. Stick to what works. Dance with the one that brought you.
Sometimes traders will start trading more aggressively when they are down in an attempt to get back to even. Draw downs are a fact of life in trading. Trading is not like drawing a paycheck. You do not get paid because it is Friday. I research the systems and then use that information when trading. If I have a losing streak I know that is to be expected and just stay focused on using the knowledge and skills that come from fully testing and analyzing trading systems.
Steve Palmquist a full time trader who invests his own money in the market every day. He has shared trading techniques and systems at seminars across the country; presented at the Traders Expo, and published articles in Stocks & Commodities, Traders-Journal, The Opening Bell, and Working Money. Steve is the author of, “Money-Making Candlestick Patterns, Backtested for Proven Results’, in which he shares backtesting research on popular candlestick patterns and shows what actually works, and what does not. Steve is the publisher of the, ‘Timely Trades Letter’ in which he shares his market analysis and specific trading setups for stocks and ETFs. To receive a sample of the ‘Timely Trades Letter’ send an email to firstname.lastname@example.org. Steve’s website:www.daisydogger.com provides additional trading information and market adaptive trading techniques.