Trade In Options – Trading Options Video 27 part 8


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I want you to take a look at what the raw numbers of these indicators look like. I have both down-volume and up-volume in my indices list here. I also have the declining number of issues, and the advancing number of issues. If you just take a look at these numbers, it’s very hard to determine any type of trend, when you have these numbers.

These are the symbols that you would use in the TOS platform to access these numbers. It’s D-Vol, U-Vol. DECN, ADVN. This is the advancing issues of the New York Stock Exchange. That is the raw number. There are 643 issues up on the day, so far. this is the declining number of issues for the New York Stock Exchange. There are 2,412 issues declining today.

This is the volume in which these advancing issues have generated on the day. This up-volume is the total volume of all of these 647 issues that are advancing. The down-volume is the total volume for all of these declining issues.

When we chart these, what I do is chart the difference between the up-volume and the down-volume, and the advancing vs. the declining issues. You get something like this.

This is the volume. The volume is on the top. The number of issues that are either declining or advancing are on the top here. It’s very interesting. For example, sometimes I’ll sit here and I’ll look at this. On a 5-minute chart, there was a rally here, right around $12.30.

Now, the Dow Industrial Average is down about 287 points, right now. Right here, there was a rally, right around $12.25. That is where the rally started. How would you determine whether or not that was a real rally, or just a fake rally; a rally within this really bearish day that we’re having?

One thing that I used is the fact that there was a surge in the numbers of issues advancing on the day, rather than declining. You can see that they started out at a very low level. They started to advance here.

What happened to volume? This measures the amount of volume, the raw number of volume, to the upside, vs. the down-side. The way that you enter this into the chart is simply $UVOL minus $DVOL. All this does is charts the difference between the up-volume – this is the volume that all the stocks advancing are generating for the day – versus the volume on the declining issues. These are the number of stocks declining at this moment, and that’s their volume, just for those declining issues.

Generally, what happens when you have a rally of any kind – you want to see where the money goes. Where is the money headed? When you track volume, in addition to price, in addition to the number of advancing or declining issues – money is really what talks on Wall Street. Money flow is just about everything.

We had a huge advance in the number of issues here, that were actually starting to turn around and go higher. We had a slight surge in prices down here, right in this level. But what happened? We didn’t get such a big surge in the volume. The volume was extremely light on this increase, in the number of issues.

Let’s also go over to one of my favorite indicators, here. Sometimes I have these three all up at the same time. I call this the Happy Family. My Happy Family charting technique.

Basically, you can think of price as the child of the family. It’s really erratic sometimes. Sometimes it will go up, and sometimes it will go down. It’s not very smooth. It just bounces all over the place, as small children do. They just bounce all over the place. They don’t have any rhyme or rhythm. They don’t have any plan. They just go up and down.

The number of advancing and declining issues is the mother of the family. She is a little bit more stable than the children, but she still is erratic at times. Sorry to all the women out there. In general, they tend to be a little bit more emotional.

The father is the volume. He is a little bit more steady. You can see that even though the advancing issues and the declining issues tend to move around a little bit, and so does price, volume tends to be fairly steady. When volume says, “Hey, look, there’s an advance here,” but the volume is not going up considerably, then you have a divergence.

For example, let’s see you saw this price increase, right around $12.25. You saw the prices starting to increase here. Would you trust that price? Would you trust the fact that prices are headed up?

If you looked at the number of advancing and declining issues here, it did follow up. We had a huge increase here at the same time, right around $12.25. A huge number of issues were advancing, rather than declining. That’s a good sign. You have prices increasing, and you have more advancing issues rather than declining issues in this chart.

However, when you look at volume, volume barely moved. In other words, none of the big money, none of the insiders on Wall Street, were following this move at all. There was hardly any volume in this movement. You could say with a high degree of probability that the downward momentum would continue, because of the lack of volume here, on this advance.

This would be a very poor time in order to go long. If you were day trading – which I do not recommend – if you had these three indicators up, you would see that, “Hey, prices are starting to stabilize in here. They’re starting to go up, little by little.” Every single time, there’s a higher low. You have 3 higher lows here. You have a breakout here, at 12.45. At 12.45 here, you’re right up here, and you also had a breakout.

For those who are into traditional technical analysis, all a breakout means is that the previous high – this high was taken out, and advanced the price. If we came down to volume here, you can see that the previous high was over here. That was not taken out. There was a divergence between these indicators.

In most cases, what you want to do, is simply follow the money. You can think of this indicator, of the difference between the volume on the issues that are going up, and the issues going down, as a money flow. In other words, when this is going down, is money flowing out of stocks, or into stocks? Is there more selling pressure, or is there buying pressure?

In this case, since the beginning of the day, there has been more selling pressure than buying pressure. When you follow this all the way down, there is a little bit of buying coming in here, but it was fairly weak. What you like to see on the volume is a huge green bar here. This might indicate that prices are going up dramatically, and there is lots of volume going into that move.

You want to follow the money. You always want to follow the money in these types of markets.

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