Wednesday 29 October 2008

Volume Indicator and High Volume Churn

Emini trading continues to surprise - no, to be breath taking! Yesterday we had a top to bottom range of almost 100 points. Today we dropped 50 points in the last 20 minutes. You need a strong stomach and to stick with your stops. Will the days of 12 point daily ranges and less than 1 million contracts traded ever return?

Bob sent me an email and wanted clarification on the color scheme and interpretation of the Better Volume Indicator. The color scheme is noted on the chart below and can be changed at will in the indicator inputs.

Emini Volume Indicator Image

Better Volume Indicator and Color Scheme (Emini 9 minute)

High Volume Churn occurs when the bar's volume is large but the bar's range is small. I color price bars blue when there is High Volume Churn. But I color the volume histogram green. I suppose this is a bit odd and illogical, but you don't have to do the same.

You will typically see High Volume Churn bars in 2 places. The first is at market tops and bottoms. The chart above shows a great example where the Better Sine Wave indicator signaled a possible End of Trend ("END" text plotted automatically), which coincided with High Volume Churn (blue paint bars). New selling volume has entered the market and is overwhelming the buyers and preventing price moving up, therefore, keeping the bar's range small.

The second place where you'll see High Volume Churn was beautifully described by Wyckoff as "Jumping the Creek" or "Falling through the Ice". These terms describe similar price action - only "Jumping the Creek" is for up trends and "Falling through the Ice" is for down trends.

At the beginning of an uptrend, there will come a time when price has to break through the last resistance level made on the way down. Typically there will be strong resistance here and the buying volume will have to be large to overcome the selling volume. During this "battle" the range tends to be small and volume large - resulting in a High Volume Churn pattern.

TradeStation EasyLanguage code for the Better Volume Indicator and PaintBar is FREE and can be downloaded by clicking below.