The enemy of technical analysis
Volume indicators may be of little significance at a large timeframes, but it is important to look at changes in trading volume and price momentum at a smaller timeframe.
Because a sudden increase in trading volume is the enemy of technical analysis, so understanding market energy can avoid a lot of unnecessary losses. Some trading volume changes are predictable, such as trading time zone where the European and US markets overlap, or some global economic data and events. We should avoid opening new trades during these periods of trading volume increment.
Yes, the so-called enemy will break the existing technology analysis, or the “market pattern” that is being formed. We can say that these enemies are essentially related to price momentum or energy.
- Irregular volume changes
Irregular volume increment is mostly due to the impact of news. Health crises, political instability, insider trading, etc. may all cause irregular volume changes. However, most of the heavy volume will only break the patterns and effectiveness of technical analysis for the lower time frame (hourly or below). When irregular volume changes occurs, the previous support resistance, moving average, and technical indicators are likely to fail.
- Periodic resonance volume changes
You may also have encountered such a market, that is, when you are trading, you see a good trading opportunity at the 15 minute and 4 hours level. But when you enter the market, the price will go in the opposite direction, first sweep away your stop loss, and then come back and move in the direction you analyzed. This situation makes everyone very depressed, because you not only have to bear the pain of loss, but also watch the market go in the direction in your possible favor.
There are two possibilities that causes this situation. One of the reason is that your entry position is not good. Another possibility is the phenomenon of periodic resonance. In other words, the position where you enter the market at the smaller timeframe is also the entry position at the larger timeframe. Many traders might find this resonance beneficial to their trades. But this is not necessarily a good thing. When different timeframe resonate at technical points and overlap each other, trading volume tend to increase and breaks technical patterns.
Although timeframe resonance often means that there may be a opportunity for a big market wave to occur. But at the same time, entering the market in a smaller timeframe will cause many people to lose trades.
- Liquidity issues
The Swiss franc black swan event, crude oil negative price event, stock index circuit breaker, etc. are all liquidity issues. This trading phenomenon cannot be solved, we can only avoid trading products with poor liquidity. Find some other pairs or products with better liquidity to trade. For example, if a stock keeps limit up or limit down. Such stocks lack the significance of technical analysis, because there is no effective market transaction behind the price, no trend fluctuations, and no manifestation of human nature.