The Chart looks a bit crowded but once you get into it you will appreciate the multiple Volume analysis perspectives it offers.
You will find the following on the Chart:
(a) the Share Price (rescaled to 0-100)
(b) Large & small traders/ Trading Flow
We use a certain algorithm (for each day) to separate HIGH Volume flow from LOW Volume flow which we then weight with (Close (t-1) - Close (t))/True Range (t) which in turn will then be accumulated.
Interpretation
A rising blue line stands for large Volume Accumulation. A falling line represents Distribution. Our objective is to follow the Elephants therefore we trade with the blue line and ignore the small traders as noise ....
see (1) : The Elephants start to leave without putting to much pressure on the XLF Price!!(Pls bear in mind that this kind of proxy Analysis provides a probabilistic approach only and can be wrong at times!)
(c) Active Boundaries
This approach tries to guess the current average rate of unrealized returns of current shareholders. As you can observe the brownish line oscilates around the "Zero-Line" (Value: -50) which indicates that a certain group of active traders that follow this particular shares tend to prosition profit targets and Stop Losses within a certain % range.
For example here in the XLF ETF we can see that most current investors that are still in average a Rate or Return of around 10%. (Current Value: -40 - Zero-line: -30= +10 %).
Pls also see (2) that the average return was higher in the 1. Week of August and that traders have started to silently take profits at still relatively constant prices.
(d) Divergence of Volume Flows to Price Rate of Change
This fairly complicated Indicator measures divergences btw. the Price and Flow movements. Interpretation:
- red line above ZERO-LINE: Price move is in sync with the large Volume Flow ("Elephants"): Bullish
- red line below ZERO-LINE: Price move is out of sync with the entire Volume Flow: Bearish
FLOW STATUS of XLF (Financials ETF)
(1) Elephants are taking profit
(2) Traders are taking profit. Next checkpoint (see 08/07/09) for the avg. RoR: -8% (=> -16% from currently +8%), after that -25% (see 06/03/09 =>-33% from now)
(3) Divergence Indicator: NOT POSITIVE
Another observation:
Pls notice how aggressively lg. traders started to buy into the rallies around Mr 6, Apr 20, Jul 8 and then sold off on Mar 16, may 8. This feels like a traders' market with no true convictions.
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(correction: (see Chart) Zero-line Value: -50)
(The ideas and concepts are interpretations of http://www.amazon.com/Value-Time-Trading-through-Effective/dp/0470118733/ref=cm_cr_pr_product_top )
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