| Posted in THE GATEWAY TO SHORT-TERM TRADING | Posted on
Emotional forces shape trends through all market conditions. New uptrends build crowd
enthusiasm, which attracts waves of greedy buyers. Gaming mentality slowly overcomes good
judgment as prices push higher and higher into uncharted territory. The frantic rally finally cools
and the herd turns nervous. As the market rolls over, fearful selling replaces greedy excitement. The
decline gathers force and continues well past rational expectations. Panic replaces fear, but just as
pain becomes unbearable, value players jump in and end the correction. Price starts to form a
bottom and a new Pattern Cycle springs to life.
In a turbulent marketplace, distorted expectations characterize both long and short positions. Price
destabilizes and crowd participation swells as bulls and bears swing through emotional battles.
Although these constant waves of accumulation and distribution appear chaotic, they often conceal
an axis of directional movement. To measure this underlying tendency, study the emotional imprint
of buying and selling behavior.
Two simple pieces of data unlock the mysteries of emotional markets: price and volume. While
technicians manipulate price through many patterns and indicators, the best volume analysis arises
from the simple histograms offered through most charting packages. These spikes and valleys in the
lower pane of the price chart often tell swing traders all they need to know about the current crowd.
Common histograms display volume through a single hue or color-code the action based on the
price bar’s closing direction. The two-color (red for down and green for up) version offers a
powerful view of that market’s trend-range axis and uncovers complex insight into crowd direction.
Once this is detected, watch for opportunity as the indicator tracks the interplay between buyingselling
behavior and directional price movement.
Volume rarely reveals accumulation-distribution in a straightforward manner. Bursts of emotional
buying or selling may dictate price direction over short periods of time, regardless of the underlying
trend. Effective longer-term analysis requires filtering mechanisms to distinguish between these
pockets of frantic volatility and significant participation that will eventually guide prices higher or
lower.
A hidden spring ties together volume and price change. Accumulation-distribution may lead or lag
trend. As one force steps forward, tension on the spring increases. The leading impulse pauses until
a release point strikes and the other surges to join its partner. This tension measurement between
price and volume offers an important signal for impending market movement. Since positive
feedback requires synchronicity between both elements, volume leadership predicts price change.
Classic technical indicators provide continuous accumulation-distribution readings. Lesser-known
techniques measure the tension on the price-volume spring itself. Like water brought slowly to a
boil, volume reflects latent energy that releases itself through trend. Accumulation-distribution and
histograms measure the power of this emotional force.
Analysis of crowd participation through volume has little value unless it accurately predicts price
change. Profitable setups arise through recognition of climax volume events and identification of
emotional force building at key breakout and breakdown points. Human nature swings greed and
fear between stable boundaries most of the time. The master swing trader can identify those narrow
conditions where volatility will spike and destabilize crowd behavior toward its emotional
extremes.
Accumulation-distribution reaches into herd behavior better than any other form of technical
analysis. It also requires great effort to filter out meaningless data and focus on key crowd
interactions. Markets generate volume for many non-emotional reasons, such as secondary offerings
or block trade reporting. But these technical events never move trends the same way as greed or
fear. In most cases, successful trade execution belongs to those who can consistently read the
paranoid mind of the markets.
enthusiasm, which attracts waves of greedy buyers. Gaming mentality slowly overcomes good
judgment as prices push higher and higher into uncharted territory. The frantic rally finally cools
and the herd turns nervous. As the market rolls over, fearful selling replaces greedy excitement. The
decline gathers force and continues well past rational expectations. Panic replaces fear, but just as
pain becomes unbearable, value players jump in and end the correction. Price starts to form a
bottom and a new Pattern Cycle springs to life.
In a turbulent marketplace, distorted expectations characterize both long and short positions. Price
destabilizes and crowd participation swells as bulls and bears swing through emotional battles.
Although these constant waves of accumulation and distribution appear chaotic, they often conceal
an axis of directional movement. To measure this underlying tendency, study the emotional imprint
of buying and selling behavior.
Two simple pieces of data unlock the mysteries of emotional markets: price and volume. While
technicians manipulate price through many patterns and indicators, the best volume analysis arises
from the simple histograms offered through most charting packages. These spikes and valleys in the
lower pane of the price chart often tell swing traders all they need to know about the current crowd.
Common histograms display volume through a single hue or color-code the action based on the
price bar’s closing direction. The two-color (red for down and green for up) version offers a
powerful view of that market’s trend-range axis and uncovers complex insight into crowd direction.
Once this is detected, watch for opportunity as the indicator tracks the interplay between buyingselling
behavior and directional price movement.
Volume rarely reveals accumulation-distribution in a straightforward manner. Bursts of emotional
buying or selling may dictate price direction over short periods of time, regardless of the underlying
trend. Effective longer-term analysis requires filtering mechanisms to distinguish between these
pockets of frantic volatility and significant participation that will eventually guide prices higher or
lower.
A hidden spring ties together volume and price change. Accumulation-distribution may lead or lag
trend. As one force steps forward, tension on the spring increases. The leading impulse pauses until
a release point strikes and the other surges to join its partner. This tension measurement between
price and volume offers an important signal for impending market movement. Since positive
feedback requires synchronicity between both elements, volume leadership predicts price change.
Classic technical indicators provide continuous accumulation-distribution readings. Lesser-known
techniques measure the tension on the price-volume spring itself. Like water brought slowly to a
boil, volume reflects latent energy that releases itself through trend. Accumulation-distribution and
histograms measure the power of this emotional force.
Analysis of crowd participation through volume has little value unless it accurately predicts price
change. Profitable setups arise through recognition of climax volume events and identification of
emotional force building at key breakout and breakdown points. Human nature swings greed and
fear between stable boundaries most of the time. The master swing trader can identify those narrow
conditions where volatility will spike and destabilize crowd behavior toward its emotional
extremes.
Accumulation-distribution reaches into herd behavior better than any other form of technical
analysis. It also requires great effort to filter out meaningless data and focus on key crowd
interactions. Markets generate volume for many non-emotional reasons, such as secondary offerings
or block trade reporting. But these technical events never move trends the same way as greed or
fear. In most cases, successful trade execution belongs to those who can consistently read the
paranoid mind of the markets.
