Stocks Trading Generate Stocks Signals with a Stocks Strategy
Stocks Trading Generate Stocks Signals with a Stocks Strategy
This stocks tutorial will show an example of a Best Stocks Strategy that swing traders can use to come up with a profitable Stocks Trading Best Stocks Strategy. Based on the popular stocks strategy, where stock investors use volumes to predict stocks price direction, based on the concept "Volumes always precede stocks price", in Stocks Trading market, there is no central clearing house where volumes are aggregated, so in we use an indicator that will estimate the volumes. This stocks indicator is known as On Balance Volume.
This stocks indicator is then combined with RSI & Moving Average Crossover Best Stocks Strategy to form a Stocks Trading Best Stocks Strategy. The Indicator settings are:
- 5 and 7 LWMA, Linear Weighted Moving Averages
- RSI 14
- OBV stocks trading technical indicator
Timeframe: 4 H Chart
Entry Signal
Buy
- Both Moving Average pointing up
- RSI above 50
- OBV stocks indicator is in an upwards stocks trend line or it has broken downwards stocks trend line
Sell
- Both Moving Average pointing down
- RSI below 50
- OBV stocks indicator is in a downward trend line or it has Broken upward Trend line
Exit Trading Signal
OBV stocks indicator trend line is broken
RSI gives an opposite trading signal - 50 centermark cross over
You can read more about writing a Best Stocks Strategy rules Writing Best Stocks Strategy Rules and Generating Stocks Trading Signals
You can also Read about other Stocks Trading Strategies: Strategies List
Example of Trading Stock generate Signals with This Best Stocks Strategy
Before looking at example below, using the 138 pips and 177 pips profit examples, you need to learn the concept of volumes precedes stocks price & On Balance Volume technical indicator.
The On Balance Volume trading indicator uses volumes to measure money flowing into stocks or money flowing out of stocks.
OBV stocks indicator most popularly used for stocks analysis. The concept behind On Balance Volume is that Volume precedes stocks price always and when it comes to analyzing the direction of a financial instrument whether or a trading instrument nothing is more crucial to this stock trading analysis as understanding the volumes that are flowing in and out of stocks. These volumes can be in terms of money, in Stocks Trading because charts moves in ticks data, the more flow of money in stocks the more the ticks data, therefore volumes in Stocks Trading will measure number of tick data participating in stock trading.
On Balance Volume acts as a leading indicator giving a one an idea of how much buying pressure or selling pressure is moving into a stocks. And because volumes precedes stocks price then this can be used as a good technical indicator to show the general investor sentiment.
For a Stocks Trading Best Stocks Strategy a one requires indicators are calculated differently. For example our Best Stocks Strategy is based on
RSI - momentum indicator
MA - direction based indicator
OBV stocks indicator - volume based technical indicator
A Best Stocks Strategy like this give a good overall picture of the stocks market movement by taking into account three different calculation techniques as opposed to using Three oscillators that give signals based on the same calculation method.
The OBV stocks indicator will measure the tick volume of a stocks trading instrument, for every candlestick. If you use the 1 hour chart timeframe, then the volumes will measure the total volume for the 1 hour. If you use day charts then the volume will measure the total volumes for stocks for the whole day.
However, the volumes indicator doesn't show the direction of the volumes, only differentiating by colors for the different candlesticks, Green for Bullish Stocks Candlesticks and Red for Bearish Stocks Candlesticks.
This is where the On Balance Volume comes in & adds a direction to the volumes and shows the overall direction that the volumes are flowing, whether into or out of stocks.
Volume Precedes Stock Price
Volumes always precede stocks price, this makes volumes a leading technical indicator. Knowing how to interpret this helps a trader make better decisions when it comes to predicting where the stocks market direction is going to be moving to next.
When the volume rises it shows that money is starting to flow into a stocks. Because volumes will precede the stocks price, the next thing is that the value of stocks will then go up. When the OBV stocks indicator is going up it shows there are more buyers buying stocks than the sellers selling it.
When the volume falls it shows that money is starting to flow out of stocks. Because volumes will precede the stocks price, the next thing is that the value of stocks will then go down. When the OBV stocks indicator is going down it shows more trading volume is going short than long.
Subsequently when a downward stocks trend line of the OBV stocks indicator is broken it shows that sellers are starting to take profit and close their stocks trading orders.
Likewise when the upwards trend line of the OBV stocks indicator is broken it shows that the buyers are starting to close their buy stock trades and take their profits.
Because the On Balance Volume will add direction to the volume and form a general direction, a trader can compare the two, the stocks price direction and the OBV stocks indicator direction. The direction of these two should correspond but when there is a disconnect between these two then one should pay attention to know when to exit the stocks market or when to open an order.
On Balance Volume is a leading indicator and a trader using this indicator can avoid entering a stocks market when it is too late. This Indicator is also a good indicator to show when to take a profit early enough before the stocks market takes away all your profit.
Stocks Indicator Formation
The OBV stocks indicator is the cumulative addition and subtraction of volume based on stocks price direction.
Upward direction - adds volume/ technical indicator moves up
Downwards direction - subtracts volume/ technical indicator moves up
Sideways market/Range market - technical indicator moves Sideways
Because stocks price moves in a zigzag manner, the OBV stocks indicator will also form in a zigzag manner
Stocks Price Trend lines
Most Traders will use these to generate buy & sell signals.
For our Best Stocks Strategy we shall use the OBV stocks indicator to confirm these buy sell signals from stocks price trend lines.
We shall draw a Stocks trend line on both the stocks price and Stock Technical Indicator. If both give the same signal we buy or sell depending on the direction.
This stocks strategy will be used to determine two things.
Continuation of the current market direction
Reversal of the current market direction
Example of this Strategy
1. Downwards Bearish Market
In the above chart the first half of this stocks trading instrument is bearish. This can be shown by the stocks price trend line that shows a downward direction. This stocks price downwards trend line is also confirmed by the downward trend line on the indicator - as long as these two move in the same direction then the direction of the stocks instrument remains decisively downward.
Because volumes precede stocks price, a trader can hold on to his sell stock trades because the stocks market direction will not reverse, before OBV stocks indicator gives a warning.
2. Stocks Trend Change
Halfway through this chart there was a stocks market reversal marked by the vertical line. This reversal stocks signal was generated when there was a trend-line break as shown on the stock chart.
From the stock chart you can see that the OBV stocks indicator gave the reversal stocks signal just before the stocks price trend line was broken generating a reversal stocks signal. If you had opened a sell this is where you would have closed all your trades.
3. Upward Bullish Market
Trading a stocks market reversal can be sometimes tricky, but the reversal stocks signal generated above was generated at the optimum time and stocks price continued to move up after this reversal stocks signal was generated.
For this you would have just bought the stocks trading instrument when the two trend lines were broken to the up side giving a buy signal. This buy was also a good signal in that the On Balance Volume had already formed an upward stocks trend line by the time the downward stocks trend line was broken.
The new OBV stocks indicator upwards stocks trend line confirmed the direction of the market as a buy and more stocks traders will open buy stocks orders and as long as it holds, as it did in the above example then the stocks price will continue moving upwards.
After this stocks signal was given you can see that later the stocks price formed a decisive upward stocks trend line that matched the OBV stocks indicator upwards stocks trend line. As long as the two kept moving upwards then the stocks market was firmly upwards.
Stocks Whipsaws
4. At the end of this upwards direction, OBV stocks indicator gave a stocks trading whipsaw as if to break the upward trendline. However, even if you had opened a short trade because of this new signal that had formed as shown above you would have quickly closed your sell stocks orders before they reversed because the OBV stocks indicator soon broke this downward trend line as shown above and therefore the sell stocks trade which was forming is now not valid.
One thing which a trader must learn to avoid as with any other stocks strategy is that whipsaws might be generated. The best way to avoid this is to exit as soon as the OBV stocks indicator trend line is broken especially when you're trading the reversal stocks signals.
For the above example once you exit the short trade, after the new OBV stocks indicator downward stocks trend line was broken it shows there were still more buyers in this stocks trading instrument and it is better to exit any reversal trades that you might have opened, this is because the stocks price might as will move further upwards as shown by the stocks indicator moving upwards.
Because the OBV stocks indicator still went up even after touching & breaching it a little, the OBV stocks indicator upwards stocks trend line still held therefore the upward bullish direction is still intact according to our stock trading technical analysis and any further trades here are still buy.
Stocks Trading Generate Stocks Signals with a Stocks Strategy
