What Traders Want; Confirmation to Buy or Sell.

By Lisa Erdmier, President, Chart-Ex LLC

Finish that last swig of coffee, turn on your computer and get ready to trade the mini-sized Dow, one of The Chicago Board of Trades fastest growing, liquid, and efficient contracts. The mini-sized Dow market, like all other markets, is made up of different traders making different trading decision that come together to form a uniform pricing structure. Every trader is different. Every trade is different. Few traders rely on only one piece of information to make a decision; they will use a number of tools, either calculated or gut instinct. Finding confirming data that will reduce the number of variables will enable a trader to make a more informative and confident trading decision. That is what traders want, confirmation to buy or sell.

Two dynamic trading tools that traders use are "Market numbers" and "Volume at price". Market numbers refer to pivot point, support and resistance numbers. The basic mathematical formula for the pivot point is derived from adding the high/low/close and dividing by 3. A vast majority of traders use this number to determine the market's direction. If the market trades above the pivot point, this is viewed as a "buy" signal. "Volume at price" refers to historical cumulative volume at each price. Cumulative volume at price shows the total volume that has traded at each price for different time frames, such as the day, week or month. Comparing the cumulative volume at price of different time frames confirms volume distribution. Traders gather market numbers before the opening bell, making it a future predicating data tool. Volume at price shows you the high/low volume areas, making it a historical data tool. Using historical data to gauge the reliability of future data is a common tool that has been used in many different forms for a number of years, because "History repeats itself."

 

Theoretical example of confirming market numbers with high volume numbers;

The mini-sized Dow's previous day's close was at 10,790, with today's pre-market opening call of 10,795-10,805. The pivot point for the day is 10,800 (in the middle of the pre-market opening call) and the weekly high volume area is 10,810. Your trading strategy for the day is to be on the long side once the market trades above the days pivot point of 10,800 and the weekly high volume area of 10,810.

The advantages of using the days pivot point with the weekly high volume area is that two trading tools merge together to give you a "buy" signal. Market numbers and historical volume at price numbers are different trading tools that have similar synergies; both show high volume areas that traders could use for entry/exit points. You are able to pinpoint the buying power at the pivot point area and the high volume area of 10,800-10,810.

Continued on: What Traders Want... Page 2