Friday was a high volume churn day. The range for the day was low at only 11.50 points but the volume was high at 1.9 million contracts traded. This suggests that as the Emini pushed higher, selling volume increased and stopped prices advancing. Turning points typically have high volume churn.

Pull Back Signal with Hilbert Sine Wave (Emini 135 minute)

We've also got a cycle turn down on the 135 minute chart – my primary swing trading time frame. The Hilbert Sine Wave has signaled a "Pull Back" (labeled PB on the chart above) and so we might see the down trend resume.

Volume Indicator Churn and No Demand (Emini 15 minute)

The 1,263 level on the Emini is offering strong resistance. There does not appear to be enough demand to push through this resistance level, as shown on the chart above with declining volume and high volume churn at the end of Friday's trade.

However, high volume churn at the end of the day does not always suggest a turning point is imminent. Sometimes it just shows day traders exiting their trades at the end of the day. We'll have to wait for confirmation to be sure.

It looks like all the conditions are there for a resumption of the down trend come Monday's trading. But I'll be waiting for a high volume down bar early in the day to signal that a new down move is under way. Good luck with your Emini trading.

Better Volume Indicator highlights "Trampoline" bearish pattern today. The Emini hit resistance at 1,385 and fell on heavy volume. The 1,385 level was a key resistance level left over from the low of 9 January 2008.

Better Volume Indicator (Emini 81 minute)

The "Trampoline" volume pattern is a reversal formation consisting of a exhaustion up bar followed closely by an exhaustion down bar. The momentum of this pattern usually results in a follow through, in this case to the downside. The next significant support level is 1,324. Let's see if the Emini reaches that level.

Good luck with your Emini trading.

Part 2 of the Better Volume indicator article today. In the last post I described how the typical volume histogram can be improved by coloring bars based on 5 criteria:

• High volume churn
• Low volume churn
• Climax volume
• Climax volume plus High volume churn
• Low volume

In that article, Climax Volume examples were discussed and the "Trampoline" volume indicator signal described. This article describes high and low Volume Churn examples. Volume Churn is simply the bar's volume divided by the bar's high to low range. High and low values are identified by comparing values in the last 20 bars.

Volume Indicator: High Volume Churn

High Volume Churn shows that as additional trading volume enters the market, less upward or downward market progress is made. In the case of an upward move, the additional volume is being absorbed by more traders willing to sell, leading to the market beginning to stall and eventually turning.

Daily Emini bars are shown on the chart below with High Volume Churn highlighted with red paint bars and green volume bars.

Better Volume Indicator (Daily Emini)

As you can see, High Volume Churn bars frequently occur before market turning points or at pauses mid way through a strong trend move. A word of caution with intra-day charts. High Volume Churn often appears on the last bar of the trading day. This does not necessarily represent a possible turning point, but is more likely just to be high volume from day traders closing out positions.

Volume Indicator: Low Volume Churn

Low Volume Churn shows that relatively little volume was needed to generate a large range bar. Using the example of an uptrend, what I think is happening is this. As the market rises strongly, traders start chasing prices higher. Some will buy at market, others place resting buy orders. As the move gathers momentum the buy orders will be progressively pulled up, until there is a long "tail" of resting buy orders. However, the volume at each price point within the "tail" will be relatively small.

Now for a large trader to take profits or a short trade quickly, he will have to go quite far down the "tail" to get his volume filled. The result will be a large range bar down (in this case) and Low Volume Churn. The relatively large counter-trend move can be enough to spark more profit-taking or the start of a downswing. I'm sure this is part of the large trader's plan.

Better Volume Indicator (233 Tick Emini)

233 Tick Emini bars are shown on the chart above with Low Volume Churn highlighted with white paint bars and white volume bars. As you can see, Low Volume Churn bars frequently occur at the beginning of counter-trend moves.

You can check out the first Better Volume indicator article here or click on the feature article link below to watch a video tutorial and download the free code. Good luck with your Emini trading.

Some free volume indicator code today. Volume has to be the most underrated market variable used in technical analysis. I think this is because traders focus on whether the volume is buying volume or selling volume.

This has to be flawed – the buying volume by definition equals the selling volume. What we should be looking for is whether new buyers or sellers are entering the market – and I use a combination of the bar's volume and RANGE to determine this.

Better Volume Indicator Code

TradeStation EasyLanguage code for the Better Volume indicator is shown below. Volume bars are plotted as normal (i.e. as a histogram) but are colored based on 5 criteria:

• High volume churn
• Low volume churn
• Climax volume
• Climax volume plus High volume churn
• Low volume

Inputs: Color(Cyan), LowColor(Yellow), ClimaxColor(Red), ChurnColor(Green), ClimaxChurnColor(Magenta), LowChurnColor(White), AvgColor(Red);
Variables: BarColor(Cyan);
 
BarColor = Color;
 
Value1 = V;
Value2 = V*Range;
If Range <> 0 then Value3 = V/Range;
Value4 = Average(Value1,100);
 
If Value1 = Lowest(Value1,20) then BarColor = LowColor;
If Value2 = Highest(Value2,20) then BarColor = ClimaxColor;
If Value3 = Highest(Value3,20) then BarColor = ChurnColor;
If Value2 = Highest(Value2,20) and Value3 = Highest(Value3,20) then BarColor = ClimaxChurnColor;
If Value3 = Lowest(Value3,20) then BarColor = LowChurnColor;
 
Plot1(Value1,"Volume",BarColor);
Plot2(Value4,"Avg",AvgColor);
 

Better Volume Indicator EasyLanguage Code

The look-back period for determining high and low values is 20 bars. This is a typical cycle length and so the highest or lowest values during the last cycle are identified. I have "hard coded" the value of 20 but it is easy enough to change or use an input variable instead.

This is how the Better Volume indicator looks on a 45 minute chart of the Emini with the 5 different volume criteria annotated. When there are no volume patterns to highlight the default bar coloring is cyan (light blue).

Better Volume Indicator (45 minute Emini)

Better Volume Indicator: Volume Climax Examples

Volume Climax is identified by multiplying volume with range and then looking for the highest values in the last 20 bars. In the code above, Value2 is used to make the calculation and comparisons. There are two types of Volume Climax signals.

The first type is market exhaustion followed by a reversal in direction (both at tops and bottoms). Traders might have entered the market early trying to pick the bottom and then placed stop loss orders just below current levels. If the market can't find enough buyers these stops can be hit and begin a cascading move down in the market, quickly hitting more and more stops on the way down. The volume and range both increase and is only stopped by committed buyers with large volume coming into the market.

The first chart shows these Climax Volume patterns on a weekly chart of the Emini. Paintbars has also been added onto the weekly bars, colored red when making new lows and white when making new highs. The exhaustion followed by reversal bars stand out.

Better Volume Indicator (Weekly Emini)

The second type of Volume Climax pattern is when the market continues in the direction of the Volume Climax bar and "takes off". On the 9 minute Emini chart below I've annotated the 2 types of pattern. Again the Paintbars are there to highlight the Volume Climax bars.

Better Volume Indicator (9 minute Emini)

The "Trampoline" Volume Indicator Signal

Now for one of my favorite volume indicator signals – I call it the "Trampoline" pattern because it looks like the market bounces. When you get 2 Volume Climax bars close together, one an Exhaustion bar and the second a Take-Off bar, this often pinpoints a market reversal. In addition, I look for this pattern to occur at a cyclical turning point.

The 45 minute Emini chart below shows how this pattern nailed the bottom of a recent down move.

"Trampoline" Volume Indicator Signal (45 minute Emini)

Good luck with your Emini trading.

High Volume Churn on the Emini today. Friday started with a frightening 17 point opening gap down but then the Emini spent most of the day range bound between 1,455 and 1,465. A rally late in the day on high volume left us with a High Volume Churn day and a gap between Thursday's low and Friday's high.

Volume Indicator: High Volume Churn on Emini

My trend direction oscillators are still pointing down, however, this High Volume Churn bar may signal a retracement. Other indications that this down move is suspect include:

• Cyclical upturns on the 81 and 135 minute time frames
• Bond market is in a strong uptrend
• Professionals are still long based on Commitment of Traders
• Emini closed with large premium to market
• Market commentaries are almost all bearish

Volume Indicator Climax today with 2.4 million contracts traded. The Emini closed up 2.25 points at 1,524.75. The chart below shows the early morning weakness that culminated in a Volume Climax at 10am. A rally ensued which slowly dissipated and then around 1pm we had a low volume test at the 1,512 level – then the rally was on.

Volume Indicator

The Volume Indicator shows a number of volume patterns:

• Volume Climax bars are red
• High Volume Churn bars are green
• Volume Climax with High Churn are magenta (none shown)
• Low Volume bars are white

This Volume Climax followed by Low Volume Test is a typical Wyckoff pattern, signaling the possible start of a new move up. Yesterday's post on TRIN indicators and Emini divergence mentioned that my cyclical indicators had yet to turn. The chart below shows that the Hilbert Sine Wave is about to cross and so everything is coming together.

Good luck with your Emini trading.

The Emini closed down 6.50 points at 1,533.75 on Tuesday. Range was average at 10.50 points but volume was well above average at 1.6 million contracts – giving us a Volume Churn day. The low for the day at 1,527.00 came with a Volume Climax down bar shown on the 45 minute chart of the Emini below.

Volume Indicator (Emini 45 min)

We went short the Emini September 2007 contract on Sunday evening at 1,554.50 and have now taken profits on half the position with our 10 point profit target at 1,544.50. The initial stop loss has been tightened and we're waiting to see what happens next.

The market could go either way next. On the bullish side we have:

• Cyclical up turns on the 45 and 81 minute time frames
• High Volume Churn with a Volume Climax low today
• NASDAQ and Russell indexes outperforming the Dow and S&P500
• Professionals are still long based on COT data

On the bearish side we have:

• Composite Trend Oscillator has turned down and is at -54
• Bond market continues to fall and we are close to a downward turning point
• US dollar weakening, especially against the Japanese Yen
• Crude oil prices are rising

Good luck with your Emini trading.

The Emini closed up 5.25 points on Tuesday at 1,522.50. We got the pullback anticipated in Friday's post. Furthermore, today's low at 1,514.25 was nicely within the 1,512 to 1,515 test zone anticipated. We're now out of our profitable short position and have reversed to the long side.

Volume Indicator (Emini 15 min)

The 15 minute Emini chart above shows the volume climax marking the pullback low, after which we got a solid 8.50 point rally. Notice how this pullback was on lower volume than the climactic low 2 days earlier. I expect this rally to continue until we see similar climactic volume to the upside and coinciding with cyclical turning points.

A word of caution though – my trend oscillators are all pointing in different directions:

• Open to Close oscillator has already turned up from oversold levels
• Trading Index (TRIN) oscillator is oversold and waiting to turn up
• Smart Money oscillator is overbought and waiting to turn down
• John Ehler's Hilber Sine Wave shows the uptrend is intact

Good luck with your Emini trading.

The Emini closed unchanged at 1,514.25 on Monday. Today's volume and range were ultra-low: 0.5 million contracts traded and 3.75 points. We're definitely running out of steam.

The chart below shows the Dow index reaching new highs but on declining volume (green line). Auto-Trendlines have been added to the price bars and Volume is shown below. It was so quiet today that I decided to "jazz up" my volume indicator – it's now a riot of color!

• Volume Climax days are colored red
• Volume Churn days are colored green
• Volume Climax & Volume Churn days are colored magenta (none shown)
• Low Volume days are colored white

As you can see, today was a Low Volume day – the lowest volume in the last 20 days. Check out this post on Volume Churn and Volume Climax.

Dow Index (daily)

By contrast, the Russell 2000 Index made a lower high and reversed direction. Unfortunately, there is no volume data for the Russell 2000 Index. But futures volume was very low. A similar pattern was seen on the NASDAQ index.

Russell 2000 Index (daily)

Lastly, an updated chart of the Composite Trend Oscillator. As you can see, it caught the bottom of the last rally 5 days ago quite nicely. It has now reached a level of +90.

Composite Trend Oscillator (Emini daily)

Good luck with your Emini trading.

The Emini closed up 1.25 points at 1,480.25 on Wednesday. Volume and range were both slightly above average at 1.1 million contracts and 11.00 points respectively. The chart below shows Emini trading over the last month or so on a 135 minute chart. Remember, this divides the trading day into 3 equal parts.

Volume Indicator Signals (Emini 135 min)

At point A we had a volume climax and the end of a down trend which forced out the remaining sellers – after which the market could rise.

At point B we had another volume climax at the end of an up trend which allowed the professionals to take profits – after which the market fell.

At point C we had a quieter general rise in volume while testing a previous support area, indicating the smart money was buying. Note the very low volume bar (red) just after this area showing no interest in further selling and again the market rose.

At point D there was a similar pick up in volume to C while testing a previous support area and absorbing the selling volume – again allowing the market to rise.

At point E we have a series of large volume bars, each the first bar of the day, with very little follow through for the rest of the day. Is that professional selling during the afternoon? On the final bar (yesterday afternoon) there was more volume than any other afternoon bar during the last rise. The price pattern showed a spike up followed by selling and closing on the lows. Looks like profit taking over the last 3 days.

Good luck with your Emini trading.