Where Volume Matters More

Where Volume Matters More

Sept. 27, 2023

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I’ve been building automated trading strategies since 2012.

And I’ve never built (or traded) one that puts volume as its centerpiece.

But the more I research trading, the more I come across one regurgitated point: Volume is the key to everything.

In short, don’t take a trade unless big volume backs it up.

(Of course, some traders tell us that we need to see volume dry up before taking a trade. And, of course, trades taken on big volume regularly fail. So, there’s a lot of conflicting data.)

In our last Newsletter, though, we saw that volume doesn’t matter on long-term charts using a long-term system.

In fact, only entering on big volume did worse.

But those were monthly charts.

What if we went down a timeframe? What if we used Weekly charts?

Would volume matter more then?

Let’s take a look.

Last time we started with AMZN on a monthly chart. This time we’ll start with AMZN on a weekly chart.

The entry is when price closes above the 30-week simple moving average (SMA) 5 weeks in a row and the exit is after the first close below the 30-week SMA.

Here’s how the regular system did on AMZN:

Those are still nice hypothetical numbers over two decades. But what if we only enter if the current volume is greater than the average volume over the past 50 weeks?

Again, waiting for volume made us do worse. What about SPY on a weekly chart?

Here’s the regular system:

Pretty good. How about adding the volume filter?

Finally!

Adding volume on an index on a smaller timeframe chart actually made a difference, albeit a tiny one.

Let’s try one more. Here’s QQQ with no volume filter on a weekly chart:

And here’s QQQ if we force volume to be high at entry:

And there you go.

Making volume a priority definitely works better on a QQQ weekly chart.

Hmm, I think I see a trend.

As we move down in timeframe, volume seems to become more important.

Obviously, you know what we need to do next.

We need to look at Daily charts.

And we’ll do that in Friday’s Newsletter.

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Disclaimer:
It should not be assumed that the methods, techniques, or indicators presented in these products will be profitable or that they will not result in losses. Past results are not necessarily indicative of future results. Examples presented on these sites are for educational purposes only. These set-ups are not solicitations of any order to buy or sell. The authors, the publisher, and all affiliates assume no responsibility for your trading results. There is a high degree of risk in trading.

HYPOTHETICAL OR SIMULATED PERFORMANCE RESULTS HAVE CERTAIN INHERENT LIMITATIONS. UNLIKE AN ACTUAL PERFORMANCE RECORD, SIMULATED RESULTS DO NOT REPRESENT ACTUAL TRADING. ALSO, SINCE THE TRADES HAVE NOT ACTUALLY BEEN EXECUTED, THE RESULTS MAY HAVE UNDER- OR OVER-COMPENSATED FOR THE IMPACT, IF ANY, OF CERTAIN MARKET FACTORS, SUCH AS LACK OF LIQUIDITY. SIMULATED TRADING PROGRAMS IN GENERAL ARE ALSO SUBJECT TO THE FACT THAT THEY ARE DESIGNED WITH THE BENEFIT OF HINDSIGHT. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFITS OR LOSSES SIMILAR TO THOSE SHOWN.