Testing is a very frequent signal and a very good one for going long on. It is seen when you already have
signs of strength in the background. If a market is down during the day and comes back to close on the
highs, on low volume, then we have witnessed a potential test. We would now be expecting to see an
immediate response in the form of an up-move.
If the market drifts sideways and does not respond to the sign of strength, then we must assume the market
is still showing residual weakness. A successful test is a sign of strength that shows that selling (supply)
has disappeared from the market. So basically we can create the EA to continue following a down move with wider spreads and then look for an up bar with low volume, as an indication of a change of sentiment. So say if we can a test, the EA can buy on the following bar if the next bar has higher volume then the previous bar, volume that’s not excessive. We can go long and close out on green bar 5 b/c the volume is lower then the previous 2 bars and also the spread has narrowed.
our volume spread analysis
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