Reading Daily Price and Volume for Intraday Trading

Reading Daily Price and Volume for Intraday Trading

Yesterday was a big day up.  The market rallied about 30 points (about $1,500 per contract).  How can we trade that?  Was it possible to know that such a move was likely.

We think so.  Perhaps not the exact measure, but a palpable sense that:

1) the market was about to move, and

2) the direction would be up.

Let’s see how we might have seen that.

Reading Daily Price and Volume

On the daily chart, we see much of November was spent going sideways congestion.  Note during the first half of the month that each time the market dipped down towards the 2560 area it immediately rebounded to close off the lows, if not firm.  These several days of accumulation are marked with “B.”

On November 15^th, the market dipped one last time and closed above the recent lows, then has a strong response on good volume (bar #1).  We get a classic test on bar #2, with another strong response to the test at bar #3 that pushes the market back up to the swing high (A), marked by the red dashed line.

We expect at least some hesitation as we come back to the recent highs.  The question always is: how does the market respond?  Is it showing weakness?  If we are long, we would obviously be concerned should supply be present at these highs.

The day after bar #3 closes down, but is unable to fall very far.  Note the volume recedes promptly on the pullback.  The next day shows buyers remain present as the market dips into the middle of bar #3 and it’s high volume, but finds no serious selling.  Whatever supply existed in the high volume of bar #3 is no longer present.  This is the meaning of the price action and volume of bar #4.  Bar #5 shows buyers eager to hold the highs around 2,595.  The higher low and higher high with a firm close coupled with an increase in volume show the telltale signs of eager buying against this higher support (A).

We see that whatever selling exists in the market, it is not having much of an impact on price.  We see accumulation, holding support, failure to fall lower, and clear evidence in the daily price and volume that buyers were entering the market whenever price fell a few points lower.  Testing, aggressive buying, and holding gains at the higher support all portend higher prices.  Since we are about to break from a congestion area or trading range, we could anticipate a strong move up and out of the consolidation.  And, that’s what happened.

Intraday Application

Tomorrow, we will look at the intraday trading for yesterday (November 28^th) and see where sound trades set up and why they were choice setups in this market context.

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