Professional Trading With Volume

Welcome back traders and investors. This is Rob Hoffman from Become a Better Trader, here to show you more key tools and techniques that you must know as a professional trader.

In this article, I want to focus on usages of volume in a more professional way. I see a lot of people use volume in lots of different ways, but what I want to do is show you one of the key ways that I use volume. I actually have it already built into my methodology, but for those of you that aren’t familiar with my methodology or my indicators, that’s okay. I want to show you a strategy that will give you something else to look at as you’re analyzing short-term tops and bottom opportunities within your favorite instruments.

What I’m looking at is a chart of crude oil, which happens to be one of my favorite trading instruments recently.  As you look at the video above, what you will see is really an add-on to what you’ve already learned from me in the videos and articles.

Based on what you learned in previous entries here, you may already start to spot several areas of potential accumulation and distribution in the charts.  There’s lots of  different areas where after we’ve been moving up for awhile or we’ve been moving down for awhile, we start to see the tails. And these are a couple of these different points that we want to focus on. As you learned in the previous article we take these areas as highlighted in the video above, we draw them out, going into the distance. Those become key support and resistance levels,

Make sure you go back and watch the other videos so you can see that in action, how these past areas of distribution or accumulation become future support.  Also, be sure to watch the video above to follow along with the trading ideas explained in this article.

You can see that, as we play that out here into the future, I’m just using hand-drawn lines on the chart, but you’ll get the point for effect. What we’re doing with this is not just using this for accumulation and distribution as a whole, but we want to use the volume to try to help us identify where these potential turning points are in the first place. Notice that with the volume, you’ll see that the  bar pushed down on this much volume.

Then you’ll notice that the next bar pushed down, but then closed well off its lows with even more volume. Now think about that for a minute,: if there’s more volume when there’s all sell-side enthusiasm for the volume, shouldn’t this bar have closed down further? If this bar of sell-side enthusiasm could get it down this far, then the next bar should clearly have closed somewhere down in this area. Instead, what you’ll notice that it actually came back off the lows and closed up there around 50% off the high on higher volume.

This is likely to be an area where you want to start thinking that the market may reverse in the short-term. So if you’re short, basically what you’re looking at is an area where you may want to cut your trade. I have a tool,  that I call a hidden long, where I’m looking for the markets to come back up, or hitting short for the roll back overs, using these premises. So, depending on what your indicators show, you are  looking for these to be long side trades once the market confirms itself.

And there are different ways to do this. You can take the trade long above the high of the bar that caused the accumulation. That’s one of the most common ways to do it. It’d be much more aggressive to take it right at the close of this bar. Granted, as you can see in the examples in the above video, this would’ve given you extra profit opportunity in this particular case, but it’s a little bit more risky, because sometimes these accumulation bars can find themselves digging a little bit deeper before they ultimately come back.

So what’s basically happening in this example, not only is so much buying coming in to stall out the move to the downside, but enough buy enthusiasm is coming in there with enough intensity to actually push it back 50% off the low. Same thing occurs in the opposite direction as well: this one was coming in with enough intensity to bring it back 50% off the high. So the distribution was coming in, the selling was coming in. You’ll notice then we push back to the downside.
What’s happening now is not only has so much enthusiasm come in to stop the move to the downside, but it actually brought it roughly 50% or more off the low. So this is a concept you’ve heard me talk about, month after month after month, and we use that of course in the live trading room each day as well. So this is the same concept that we’ve talked about, both in this professional series, in the regular nightly videos, so I’m just putting it to use here again, since this ended up being my favorite trading instrument in the live trading room this morning, I thought I’d share it with you guys here today.

Check out the examples in the video above for more great examples of this concept at work.

You see this big long red bar to the downside and lots of volume, right? But then check out the next bar. The next bar had almost the same amount of volume, and yet it had this really tight little bar here. What ended up happening? Not only did buy-side enthusiasm come in to stop it from going down anymore, but it actually pushed it off – guess what? – 50% off the low. Well, look what happened. Then we ended up going up for the next several bars here, hit right back into that previous area for the bars earlier which were distribution, only to have this come down. You’ll notice that it came down 50% off the highs on higher volume as it’s tapping into this previous area of distribution. So this ties very well with some of the other videos that I’ve put together for you, and adds some additional color for you to really learn from here.

So then we see, of course, then it had the nice push-down, got caught right into the previous area of support here, and guess what? Yep, you guessed it: it went down on this big volume bar, but then the next bar was even higher volume, only to have it do what, gang? Stop the move to the downside, come 50% off the low. You guessed it. Basically they ended up accumulating it. So somebody stepped in, defended that position, and absorbed all the selling, and then came back saying “Hey, that’s great. I want all of it that you have to give me, and I want more and I want more right now.” So that’s what’s happening here is you’re seeing this accumulation and distribution in more of a three-dimensional facet here by putting the volume on here.

Here’s another way to have you take a look at this without having some of those additional tools at your disposal, for those of you that don’t have access to me in the room each day. Then of course we see the same thing over here, how we’re pushing down, coming 50% off the lows and higher volume. I’m willing to bet that in other examples it probably started pushing up on the next bars. Sure enough, it did.

So with that being said, I wanted to show you how myself and other professional traders like me use volume in much more creative and intelligent ways as we’re trying to identify key areas of accumulation and distribution that other professional traders are looking at, and this is one very solid, meaningful way that we do that. Hope you enjoyed that video, look forward to seeing you in the next one.

Leave a comment!
Read previous post:
Professional Traders Rob Hoffman of Become A Better Trader, Inc. and John Person Share The Stage At The Upcoming Money Show Conference

Join Rob Hoffman and John Person as these two trading superstars share the stage in a rare live event at...