Volume is the fuel of financial markets. However, many traders struggle to correctly interpret whether a volume spike represents genuine buying or selling intent. In this tutorial, we dive deep into improving technical analysis on NinjaTrader 8, moving from basic indicators to advanced order flow and support & resistance tools.
The Problem with Classic Volume Indicators
Most platforms, including NinjaTrader, offer the standard volume indicator or the "Volume Up/Down" version. While useful, they have a critical limitation: they paint the volume bar based solely on the candle's close relative to its open.
For instance, a candle might close slightly below its open (painting the volume red), but the price action during that bar could have been overwhelmingly bullish, leaving a long bottom wick. The classic indicator suggests selling pressure, when in reality, the market might be absorbing sales to push higher.
A More Precise Reading: Volume Flow
To fix this, we use a custom indicator (TIS Volume Flow) that analyzes the candle's close relative to the entire range of the bar (High minus Low), not just the open. This reveals the true market pressure.
To detect when "Smart Money" enters the game, we apply a Volume Moving Average (Volume MA).
The Strategy: We look for bars where the volume exceeds this average multiplied by a specific factor.
The Goal: To filter out noise and highlight only significant volume spikes that suggest a potential breakout or market reversal.
Context is Key: Support and Resistance
A volume spike alone is not an entry signal. We need context. This is where the Support and Resistance (TIS S&R) indicator comes in, based on Swing logic.
Unlike the standard Swing indicator that leaves old dots all over the chart, this custom indicator:
Draws Zones: Groups nearby pivots to create clearer support/resistance areas.
Cleans the Chart: Automatically removes levels that have been broken or invalidated, keeping your workspace uncluttered.
How to Trade the Setup
The secret lies in combining the volume signal with price location:
Breakouts: If we get a high bullish volume signal and price breaks through a resistance zone, we have confirmation of strength.
Bounces: If price tests a previous support (without breaking it) and a volume signal appears, it presents a low-risk entry opportunity.
Filtering: If the volume indicator gives a buy signal, but we are sitting right below strong resistance, it is better to wait. The indicator helps us avoid trading directly into "walls" of orders.
Conclusion
Trading solely on volume or solely on price action can be risky. By combining a fine-tuned volume flow detector with a dynamic support and resistance system, you can filter out false signals and understand why the market is moving.
Do you have questions about these indicators or want to see more examples? Join our Discord chat or visit The Indicator Store.
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