Second Most Important Trading Fact is Volume - Time Based Volume is the Only Undistored Volume Indicator! FREE TRADING VIDEO
Time Based Volume Indicator - The Only Undistorted Volume Indicator
The second most important item next to multiple time frame price action is our (TBV) Time Based Volume Indicator.
Most traders know that volume is extremely important in making decisions in the trading profession and the vast majority of experienced traders would argue it’s the second most vital piece of information other than price itself. It tells a trader how many investors, whether they be day traders or long term, are participating on the buying and selling of a symbol during any given price bar. Volume often leads price, and if not leads, results in more pressure to the buying or selling of the symbol, giving it a direction either up or down. However, few traders take the time to master volume, and for those who do, even fewer take time to look at volume in a different manor other than simply plotting a histogram. They simply read the current bar volume as compared to the average volume.
We at CustomizedTrading.com believe there is an inherent flaw in looking at volume in this manor. The issue is not the use of a histogram, but the nature of what the volume in the histogram shows. Why? Because although it may look as if volume is up over 100% on say a 5 minute time bar, it does not answer the question, what is the current volume compared to volume during that same time bar over "x" days back? For example lets say you see volume increase 300% on the 3:55 PM eastern time compared to average volume. Although this may be true, it's misleading to the true characteristic of volume since this 300% increase is just the end-of-day volume increase. Thus, it does not reveal the true percentage increase because you are comparing 3:55 PM bar time vs. the average of a range from maybe 12 noon to 3:55 PM which is a bad comparison.
So how does one get around this problem? Well the key is to take the volume at 3:55 PM and compare it to the median value from the exact same time bars of 3:55 PM over the past month. This will tell if todays volume has truly an increase or decrease in volume compared to that exact time bars for the past month. This is exactly how CustomizedTrading.com's Time Based Volume Indicator provides undistorted volume to traders.
From the original example, the 300% increase vs average volume may actually be a decrease in volume compared to the median value of 3:55 PM over the prior 1 month of 3:55 PM trading volume. TradeStation TBV (Time Based Volume) is what we feel is the only undistored way of looking at volume, given it provides a more accurate way of looking at the percentage increase or decrease for any given trading bar.
To quote Perry J. Kaufman, "To decide whether there is a volume increase that confirms for a trade to be entered at 11 A.M., you must compare today's volume for the 11 A.M. bar interval with the previous average volume for this same period only."
As Perry J. Kaufman stresses, "Time Based Volume Indicator is the correct methodology for using volume in your trading".
Watch the webinar-video named "Time Based Volume Indicator" to see what "real" trading volume looks like:
Time Based Volume completely eliminates the high volume distortion that occurs after the open of a market, just before the close of a market, and the low volume that occurs at market lunch times. Since the Time Based Volume Indicator is time based it will work on any intraday time based chart and symbol (including Forex).
It is highly beneficial since the trader reads Time Based Volume and Volume Normalized the same across all time frames and across all Forex, Futures, and Stock symbols. Yes, you read it correctly. . . our time based volume indicators work on Forex pairs!
Volume Normalized uses 100% as the reference volume for each symbol and time frame, and then calculates and displays the current bar volume as a percentage in relationship to the 100% standard.