Volume Supporting Price? Looking at OBV | Swing Trading (Days to Weeks)

good afternoon everyone john mcnichol here and welcome to swing trading days to weeks market's got a little bit of a bounce there today but what we'll take a closer look at is price and volume on how volume may be able to contribute uh to the price momentum in the market utilize some tools such as on balance volume to be able to identify is volume supporting the price action so stick around all right well hey it's great to see uh many of you live with us today such as vj sal david now we got ganesh dylan richard tony mary mia sahali himalada charles alfred l diego and everyone else we got mr james boyd helping out on the chat any questions i'm unable to get to he'll be more than happy to help and you can see her twitter twitter handle on the screen at j mcnichol underscore tda if you wish to follow myself along with other fine instructors such as mr james boyd his is at jboid underscore tda let's take care of disclosures folks we'll get right into it content's intended for educational information purposes only non-investment advice or recommendation of any security strategy or account type options not suitable for all investors spread straddles other multi-leg options strategies often involve greater more complex risks in single leg option trades commissions are important factors commissions are important factors should be considered when evaluating a trade and keep in mind that a long option whether a call or a put that entire position may uh would be at risk hence why we teach uh some of the aspects of position sizing to a max loss likewise keep in mind as far as which short options they can be assigned at any time regardless of the in the money amount you're encouraged to practice what you learn here today with tools such as paper money software keeping in mind that it is for educational purposes and successful virtual trading during one time period does not guarantee successful investment of actual funds during later time periods mark ignitions change continuously now in order to demonstrate the functionality platform we will be using actual symbols keep in mind td ameritrade does not make recommendations or terms suitability of any security or strategy for individual traders any investment decision you make in your self-directed account is solely your responsibility now while this webcast may discuss technical analysis other approaches include fundamental analysis may assert very different views and a stop loss order will not guarantee an execution at or near the activation price once activated they compete with other income and market orders if you are new to this webcast welcome let me know if you are new would like to james and myself would like to give you a welcome there you can see a brief background on myself and things that i'm involved with here at td ameritrade education and once again it's pleasure to be with you here today let's look at our agenda now you know in the swing training class obviously a lot of that focus is on trend and support and resistance uh some traders may wish to incorporate volume into the mix to get a little better understanding uh does the price momentum is it being supported by volume idea being that if volume is supporting that price that may help with that direction whether up or down and we're going to utilize some indicators particularly the on balance volume and an on balance volume modify uh that traders may incorporate to identify uh where volume may be shifting uh whether to the up or to the downside utilizing some graphical tools now i will predicate this that there's varied opinions on utilizing volume some traders may consider volume to be overrated others focus in more on time frame possibly more important over the longer time frame than necessarily on the shorter time frame however things can change relatively quickly and some traders would like to try and get as many things on their side although there's not a guarantee of an outcome with rise in price and rise in volume that that would turn into a profitable trade but we'll go ahead and incorporate this by looking at some individual stocks not only with the price charts and some of the existing indicators that we've utilized but add volume into that mix as well so i'm going to go ahead and bring up the thinkorswim platform just real quickly on the market volatility uh has been in the market here over the last few sessions as we've seen a bit of a back and forth and uh we are seeing a hold uh on the s p as price is trading above the high of the low day however keep in mind we do have a a short term downtrend that potentially could expand into the intermediate time frame you know we're still have been making lower highs and lower lows from a swing trader perspective based off the existing trend uh shorter term swings are still more towards the downside so traders after a bounce you may look for that lower high similar to what we had discussed in previous weeks uh on the bounce and possibly look for some bearish trades notice uh the 55-day moving average which is previous support may potentially act as resistance now if price does break the downward trend that could be a sign of a reversal a bullish reversal so uh even though some strong moves there uh in the market today uh be conscious as far as that shorter term trend another positive for the bulls we are seeing a positive divergence as far as a potential shift in momentum even though prices were making lower lows we're seeing the macd making some higher lows that means or potentially means that the downward momentum is slowed down doesn't necessarily translate into a reversal but points at least on a shorter term that momentum shifting now a lot of you track the nasdaq if you look at the nasdaq same principle not quite a strong divergence here a little more neutral kind of more equal lows even though technically still a divergence as the mat as the nasdaq made some lower lows uh again a hold if i go ahead and remove some of these fibs here that we've been previously using for support and resistance we did get a bounce on the intermediate or the longer term channel that i've illustrated here over the course of the last year as prices have traded down to that support and have so far held so an attempt uh to hold that channel as some traders or investors may be looking at uh you know entries based off of that trend if that was to fail and price breaks below that support we may see some more downward momentum but sharp move down there and again kind of how we applied on the s p is still seeing those declining highs and lows uh potential confluence of resistance seeing where this bounce occurs if it'll set up a continuation to the downside or a breakout and a reversal the russell this is where things start to get a little interesting the russell which had been an out performer has lagged a little bit today on the uh as cyclical stocks have had a relatively uh better performance since the lows in august there and we're kind of right around the mean or right around that average which has been kind of par for the course for the russell over the course of this last year now if we go ahead and take a a closer look uh notice that unlike some of the other indices we're seeing some higher lows on the russell but we're also seeing potentially lower highs so think uh a triangle where the bias in this case is looking at things being a bit more neutral even the macd kind of right near that baseline so looking at things half empty or half full a driver on some of the market direction here is if the russell staggers and breaks down or if we get a bounce and go higher financials energy materials have been big drivers uh on the russell but it's interesting uh we've seen more flows into uh communication services and information technology as the nasdaq uh attempts to recover and uh in many cases did from the two percent route uh yesterday question is is there going to be some follow-through looking at volatility vix volatility has dropped significantly today but still overall a bit elevated as we're still above 20 and we've talked about in the past on kind of the a little more of an upward bias with volatility as we start this last quarter of the year now am asked the question uh you know we utilize the example of the term cohold which represents close above high of low day so here is a low day here is the high of the low day and yes we still have about 50 minutes left in the market uh that can change but currently still setting up for a close above the high the low day that is a technical term for that however uh one may see harami's or inside days and if we see the price trade above the inside day that may be a potential trigger those you that do follow me on some of the various webcasts uh some of the scripts such as the colds that i share does look for those haramis whether bullish or uh bearish and uh that's on the scratch pad if you are new to this webcast uh would suggest uh take a look on my twitter feed where you can transcribe from uh the scratch pad when you see it up but on my twitter feed on at j mcnichol underscore tda if you take a look there uh on the pin tweet everything you want to know about the webcast schedule as well as some of the different productivities productivity tools that i've utilized in this as well as some of the other classes there you can click on that pinned document and just follow the instructions and you even get some explanations on what some of these different tools intend to do not a recommendation to buy or sell any security uh but uh you know lining up with some of the principles that we teach in our technical analysis course as well as in the options course when it comes to things such as price and volatility all right so you know let's go ahead and bring up you know a couple of stocks and integrate some volume indicators into the mix now i do have multiple indicators on the chart this is not a necessary requirement to have as many volume indicators on the chart as possible i just have three of them on there just so you can see some contrast there and these are not all inclusive of volume indicators that are out there so here we're looking at apple and uh with apple as far as a starting point you know some traders may have a volume bar uh on the chart okay and uh this indicator that's on there is actually the volume average if you go up to the flask on the thinkorswim platform in the edit and you can go ahead and just start typing in volume and there is volume average remember you can always click on the question mark if you want to learn more what it's doing this is looking at a 50-day average of volume and for this standpoint the 50-day average is showing where the average volume is and any spike above that average would indicate above average volume now i am slightly colorblind so i do struggle on looking at some of these colors i probably should uh go back and and modify them a little bit maybe make the uh a little more of a contrast on the red and green there may look a little bright to you but kind of helps me a little bit there that's why i'm not a fighter pilot but notice uh look at these spikes in volume and were these spikes in volume on up days or down days yeah based off the color there uh they were on down day so we're seeing more distribution and notice that started with apple uh going back to uh around early to mid-september i even started seeing some selling pressure going into the top of that and then yes we do have a bounce today on apple not quite a hold but notice on the update we are seeing some later volume now there's still 45 minutes left we can see if there may be some panic or surge buying going into the close but notice a little bit later on the volume at this point okay now some traders may utilize that as a little more of a confirmation that you know if they see price let's say break support they would like to see that on increase in down volume uh whereas if they're looking for a breakout of resistance they may look for that confirmation a little more spike in volume now breakouts can occur without that surge in volume but some traders may incorporate that into that analysis uh more of a matter of opinion but some traders may over emphasize volume when price is certainly one of the most important drivers obviously if not the driver as far as profitability on as an example of a stock trade okay now as we go ahead and look at some other examples let's say facebook which has had some uh tribulations here uh in the news uh we can see again you know as that trend started breaking down uh seeing those spikes in volume on the downside now a little uh potentially dip buying as facebook possibly add support looking at some of those previous lows an increase in volume that may give some support for the bulls again from a standpoint of price is keeping an eye and look at which is previously a downtrend i know james teaches this extensively as well uh is looking for that diagonal break that may potentially set up for that bullish reversal okay so that's one way of looking at that volume there now what i'm going to do uh to kind of help things out here i'm going to kind of minimize this volume a little bit here and then bring up a another indicator called on balance volume and if you uh want to add that once again you can go to the the flask and go ahead and look for on balance volume again there's a little gear for the question mark and what this is is just another graphical way of what we were kind of breaking down in the example of apple here on balance volume keeps a running total of volume flowing into and out of the security uh when the security rises let's try that again when a security rises the idea is that it's considered to be up volume kind of similar to the color coding here on the bottom on that volume chart at the close is lower than the previous day's results then the volume is chalked up to down volume now of course there's buying and selling on both sides but i think the operative word here is on balance okay now an application here is a rising obv is defined as well in this example a sign of smart money possibly flowing into the security so a rise in price with a rise in obv would support volume supporting that price action whereas if the obv is falling or there's a divergence that may precede a change in price volume adherence would basically make the statement that volume precedes price so volume may be whether confirming price movement or it may be given a non-confirmation okay and those non-confirmations may occur uh when potential reversals are setting up whether they're bullish tops or bearish bottoms okay so let's go ahead and take a look at this with this example here in the case of apple and then notice over the course uh you know in the summer months towards the end of the july going into the end of august you know we could see an example of rising price and we can see rising on balance volume making higher highs and higher lows so therefore price supporting the trend now if we kind of take a little closer look zooming in on this action uh what some traders may look at and it's not always going to appear itself but look to see if the volume when there's more of a topping pattern you know is the volume still supporting now in this case with apple it was still making higher highs and higher lows okay it started backing off here but price was also backing off now may look a little more pronounced in the uh obv but another way of looking at it is where traders may look for that indicator to break down before price and so as we can see here you know bit of a breakdown below that previous low on volume bullish traders maybe look and say well that's a hammer you know looking for that bounce well that bounce didn't occur volume continued to drop off notice macd going negative as well so momentum declining volume possibly shifting to the downside so yes the comment uh on smart money i was just reading verbatim uh you know whether that's referring to wall street typically institutions per se since institutions uh drive a lot of that volume although we know that there's a lot of sophisticated retail uh traders out there and the meme stocks that are driving things as well so we'll use that term smart money loosely and then notice here you can see the continued decline as the price is breaking down fall in price obv supporting that where the momentum has shifted to the downside so what bulls may be looking for if they're looking for a little more confirmation uh on apple reversing uh may look for that obv to reverse and take out some of those previous highs so as we got into the end of uh september you know a hold there the obv rising but keep in mind price still king we still have a downward trend that could be a bit of a tell and look for that confirmation of the price to follow that volume in this case with apple notice kind of trading it up to that resistance and rolling back over okay and so more of a continuation to the downside as far as that on balance volume and as we sit right now we can see that that obv still generally has a negative bias okay by comparison when you think about uh other areas in the market that have demonstrated uh some signs of rotation such as energy here's exxon mobil you know previous that trend being down making lower highs and lower lows we've seen the on balance volume generally coming lower but notice as we came into towards the end of september uh price started going a bit more sideways uh even though the volume on balance did taper down a little bit uh to an attempt to test those lows but notice kind of more of the shift where we see a breakout price breaking out volume supporting that as far as that on balance volume and then kind of a continuation as the obv is making higher high higher low as that price action is going higher as well okay up sorry uh i did shift the facebook there i did mention apple uh so i i do stand corrected i thought it was on apple the last time around but a similar situation as far as looking for a reversal is looking for that obv to break higher and looking for that price to break higher so similar situation across on these tech stocks there now alfred brings up another indicator uh there are other volume weighted indicators that are in the mix uh if i go ahead and click on the let's say i'll just go to studies here and go to quick studies one may see and i thought we had a list here for volume indicators looks like some of them may have went away or no actually i think they're under lower studies here nope that's all in alphabetical order but if you do go into lower studies you may see various other volume type indicators that are here another one that's somewhat similar to on balance volume is money flow if i go ahead and click on the flask once again start typing in money flow and there's a few other ones uh ch cheikin jk money flow money flow right here we click on it it's kind of a similar principle although the money flow does incorporate i think a little more of the price action into that and some traders may go ahead and make some of those comparisons and notice here's the money flow on the bottom you know has some similar characteristics that we see on on balance volume okay matter of personal preference there i would encourage you to explore both of those now uh another thing to look at which is another graphical uh and this kind of gets into potentially some of the application another variation of on balance volumes called on balance volume modified and what that does is it essentially smooths out the on balance volume notice this indicator here is a little more smoother not as jagged okay and it basically adds a a signal line okay and basically crossovers of these may imply whether positive uh or negative breakdowns as far as with price so if one's looking for a confirmation of volume on a breakout they may look for that on balance modified to where they have a crossover or at least be positive be above know as you can see kind of the support to the upside and likewise when things are rolling to the downside so a little more of a graphical representation and so you know that's facebook and so for yes some traders may look for a break of that downward trend but keep in mind that volume may not be supporting that confirmation of a reversal may be when there's a crossover of that on balance volume so that was facebook again let's go and take a look at apple notice apple not as far apart there but again you can kind of see some correlation when the obv breaks down and possibly a little bit easier graphical representation of utilizing examples such as the on balance modified okay uh going back to exon which we had more of that bullish reversal and kind of notice how that could potentially help uh as far as with confirm and price action a breakout of resistance kind of more of that double bottom and the on balance volume modified crossing over and still maintaining that positive crossover and you know this could be a bit of a routine if one's you know looking at a a watch list and let me pull one up here you know just kind of look at some different examples from across the board you know here's tesla we see rise in price rise and obv i've seen the on balance modified smoothing that out and then notice again kind of similar to that bullish reversal kind of a double bottom price breaking out obv going positive taking out those previous highs and volume still supporting that trend if volume was the perceived price and non-confirmed going down what one may look for whether a divergence if this obv starts tapering off these lines start coming closer together and a crossover would be more of a negative sign bj thanks uh for that that's probably also a good opportunity so vijay likes what we're putting down here today so i would encourage you if you do like this video two things one i did notice that there is a survey so for those of you that are live with us today uh make sure you fill out that survey only takes a moment uh you can click on the link now and push it aside so that way you can go ahead and follow up with it uh at the end of the session and for those of you that are listening to the archive session uh you can vote as well by clicking like for this so other people are able to see that and those of you that are filling out the survey too if you want to vote again go ahead and click like too awesome uh yep so hopefully you'll find this very helpful and incorporate in volume with price as we kind of navigate you know the correction that we've seen in the market particularly with nasdaq and then you know when you go ahead and look at other stocks here's mgm on the game in front notice things that can be a bit mixed we're seeing things kind of more sideways not as distinguishable when we see that volume so one idea is okay is our gaming stocks coming back into favor as far as being supported by volume you know we got a little more of an ascending triangle if price was to break out see some increase in momentum possibly see that mac on balance volume going positive and see if we can see those lines pull apart to the upside supporting that momentum okay uh bowen on the industrial side knows bowen's showing some lines uh signs of life from a volume perspective possibly that volume preceding price as we've seen uh industrials and some material stocks financials moving industrial has been a little bit mixed but could there be some signs there of coming into favor okay notice that we may be seeing some positive crossovers on some moving averages which could be a sign of a reversal and it would be nice to see a volume confirms that okay now i'd like to do since we've gone through a few examples and if you have any questions uh feel free to share on the chat there i did create an example of a scan to look for stocks that may be showing that on balance modified crossover okay now as with any scans they're not perfect it could be a good teaching tool uh you know not to steer you away from a core list of stocks that you may continue following different stocks from different sectors but sometimes the scan may point out something you may have overlooked in your watch list and looking for some of those price patterns that james and myself uh and no commonly talk about and uh with that we'll share with you an example or two and encourage you to make these your own as well for an example i am looking at the s p 500 as an example of a list and let me go ahead and pull it up first and we'll run through it we'll do example on the bullish side and uh with this uh it's looking again at the s p 500 you can go ahead and modify this for any list that you want uh as what's common with the scan we do have a price filter you can determine on what price range you're wishing to look at focused on liquidity as well in this case average volume uh now i put 250 000 shares that could be a relatively smaller number for some of you again you can modify that however way you wish particularly if one's trading options may be looking for more liquidity there and then basically added a study and these are study filters this won't work in paper money it'll only work on a real-time account however you can take those results and practice trade on the paper money platform so in this case looking for the on balance modified cross and above the signal line and if one goes ahead and goes into the edit function if you were to create this on your own uh one would have to delete out the existing indicator that's in there um add a condition i'm just going to go ahead and edit this and all i did here was had the on balance modif volume modified which is basically a study you can pull that from your studies uh the plot was the on balanced modified and in this case crossing above the on balance modified signal line now again i'm going to share this with you so uh you can go in and modify this her way i left the default settings in there which were the same that were on the chart which is basically a 7 period and a 10 period if i go ahead and run this scan you know these are examples of stocks that have popped up and ones that may kind of stick out we know transportation has struggled a bit but union pacific has appeared on here we can see some energy stocks there's csx there's some insurance companies in there so you know if i go and take a look let's say at union pacific unp we can see a long range day breaking out of kind of a small double bottom pattern notice on balance volume was actually ticking up it was actually a little more of a divergence would have been nice to caught this sooner uh you know as an example of a divergence price made an equal low but the on balance volume was actually rising an example of volume possibly preceding price then we got the bounce we're seeing a breakout and we're seeing a positive crossover of that on balance modified possibly supporting that trend okay so more of a confirmation of price and volume let's look at csx if it's showing the same thing you know long range day price breaking higher not as much of a divergence on the on-balance volume and we're just kind of potentially crossing over but keep in mind with crossovers there can always be whip saws uh if prices were just a rollover because you know we are kind of contending you know with a downward trend you know there's that 55 day moving average uh but potentially setting up for that reversal and as far as the scan you can apply this to any instrument including the ones you've mentioned there mark obviously here we're focusing on equities but any underlying can typically be searched for let's go ahead and run an example of a bearish one and then i'll share these with you and basically the bearish one is looking at the opposite see if i can get that here i need to clean up some of these scans here so bearish one is basically looking at the same thing as far as liquidity but it's looking for a cross below the signal line if i go ahead and scan let's see what we get here and one was looking at a little bit earlier kind of interesting we got caesar's entertainment which is actually one of the gaming stocks that did not get hit as bad as others that were exposed to china but possibly showing some negativity as far as on balance volume citrix system as well ctxs let's take a look at those c z r now notice we still have an upward trend and you know not negate price making higher highs and higher lows is still an upward trend but is that momentum slowing uh people may look for that for slowing price momentum in the case of the macd price is making higher highs but the macd is making lower highs so we know price momentum has slowed down is volume contributing to that well got a little negative divergence here as price was making higher highs the obv is making lower highs so in non-confirmation and we're seeing a negative on balance modified now with that that doesn't necessarily mean that one may be bearish although one may be a little more contrarian but if one's in a bullish position or trading a swing and seeing these things starting to go negative that may imply a lack of momentum and swing traders are certainly looking for momentum likewise with citrix ct let's bring that up ctxs now in the case of citrix this one has been a little more on the bearish side although attempt to reverse gaps can act as support and resistance we did have an intraday break of that support although it lifted up also just like moving average crossovers it's a little flat here so there could be some whip saws if one was bearish they may be looking for more of that confirmation of price breaking down along with that volume but we're not quite seeing that okay i know uh not going to go through all the fang stocks but uh you know netflix looks like it's made a new high here rise in price rise and obv on balance volume modified rising we see macd momentum being positive earnings are coming up here so that can be a bit of a driver as far as that continued momentum but notice that price and volume are lined up here and there may be an example of a volume preceding price kind of look for these breaks on volume sometimes you may see that obv possibly tick higher whether right before or as that price is breaking out we got a little more of a moving average bounce here okay all right so let's double check make sure we covered down on everything we wanted to and i'm going to go ahead and share some of those scripts with you there we focused on price and volume and you know as a matter of the filter uh some traders may incorporate that volume to see if it is uh confirming that price action and that may lend to continued momentum uh we talked about the on balance volume which is one of many indicators that one may utilize to incorporate volume also mention money flow there's volume profile maybe we may incorporate some of those in other discussions uh possibly tomorrow in the breakout and reversal patterns maybe bring a volume profile into the mix there and a graphical way of seeing those changes in on balance volume by utilizing the on balance volume modified and even incorporating that into a scan to find some individual stocks so let's go ahead and share it i'll probably go ahead and twitter it a little bit later as well but nice tool on the thinkorswim platform is we can go up on any of our tools and share i'm going to share the bearish one first since that's the one that popped up and i'm going to put it in the left side here call it obv bearish maybe see i can spell bearish okay there we go and basically it's a seven digit character again keep in mind it is case sensitive and you can only apply it uh into the real-time platform dillon says create it into a column i may do that at some point uh i'm kind of a little restrictive on on the columns that i'll work with there as it does provide some limitations and it doesn't doesn't hurt to run a scan every once in a while and here is obv bullish let's go ahead and bring that one up and should be able to get that there let's run that scan and again this is looking at the s p 500 i encourage you to go ahead and possibly look at your own watch list or any basket of stocks that you wish to make it your own let's go ahead and share this one as well let's make sure i get the right one in there okay i'm gonna i'm gonna call an audible there i always hate i shouldn't say hate dislike when i don't know if that's a capital i or a lowercase l so let me try that again and that looks a little better so that way there's no confusion as has occurred in the past on stuff that i shared so there's the example of a bullish again case sensitive and remember applied on a real-time account if you're looking at the archive session folks you can transcribe that and practice with it make it your own and i'll go ahead and also share this on my twitter feed after this session here okay folks well hopefully we've accomplished on what we intended today which was incorporating uh volume uh into the mix can help support an existing trend and then potentially which is going to be more of our topic tomorrow when it comes to bullish reversals or bearish reversals uh may precede that price action uh one last note folks i know we're over time uh two of our previous practice swing trades uh delta and uh five are both doing pretty positive one was a a risk define a short or long call vertical also have the stock in there as well and five below was actually a put spread that actually went well beyond the anticipated target and uh just kind of show you on how both of those are setting up we'll pick up on track next week on uh execute in some additional swing trades maybe you can take that on balance volume search that we've did and look for some setups we'll talk more about these tomorrow in the breakout and reversal patterns so successful downward swing after that ryzen wedge or kind of larger flag on five below and then with uh delta looking at the bullish reversal and a follow-up flag bounce coming pretty close to hitting that previous swing target there all right okay folks well thank you so much once again go out there and do some good things practice what you learn here today with tools such as the paper money software and possibly incorporate price volume and on balance volume to help distinguish some of that momentum and remember in order to demonstrate the function out of the platform we did have to use actual symbols keep in mind t ameritrade does not make recommendations or terms suitability of any security or strategy for individual traders any investment decision you make in your self-directed account is solely your responsibility so go ahead and click like folks fill out that survey once again that mr james boyd is sending out and looking forward to seeing you tomorrow for breakout and reversal patterns take care all you

2021-10-07 09:07

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