Wednesday 31 January 2007

Volume Climax and Churn Pattern

The Emini closed up 9.00 points at 1,443.25 on Wednesday. The Fed meeting announcement lit a fire under the market and we saw a new high of 1,446.75. My profit target got hit on the way up - thank you very much - but my conservative call yesterday meant I missed a further 8 points of profit potential.

Profit taking set in at the end of the day with a classic Volume Climax and Volume Churn pattern. With professional selling coming in above 1,444 the market will find it hard to advance without re-grouping first.

Emini Volume Climax Churn Image

The chart above shows an 81 minute chart of the Emini. Again, I use 81 minutes because there are exactly 5 of these bars in an Emini trading day. The Volume Climax and Volume Churn patterns are automatically added by the magic of TradeStation EasyLanguage and some simple code. I define Volume Climax and Churn as follows:

Volume Climax = Volume x Range

Volume Churn = Volume / Range

The Fed meeting announcement caused a surge in volume and range on the penultimate bar of the chart - Volume Climax. The professional sellers then took hold and stopped the Emini rising further. With high volume and narrow range the Volume Churn reading then spiked. The result, a classic Climax & Churn pattern.

Other considerations

Other reasons I'm not confident of a further advance for the time being:

The last 2 days have seen the Dow making stronger advances than the NASDAQ
Possible Trading Index (TRIN) divergence pattern with a new high but weaker TRIN reading than 24 January
My Smart Money indicator is behaving very weakly and has not risen above 0 for the last 7 trading days

Click here to watch a video tutorial and download free code for the Better Volume Indicator. Good luck with your Emini trading.

Emini trading articles filed under Volume Indicator :