How to Use Volume Oscillators and Trend Indicators to Make You Money

You should never make a trade based only on a trend indicator. The Volume Oscillator (VO) is another indicator that will help you determine whether a trend is breaking support or resistance. In essence, the old saying is true: without volume there is no price movement and without price movement there is no volume. Use that old saying to your advantage.

Several oscillators like the Percentage Volume Oscillator (PVO) and the Market Volume Oscillator (MVO) and are based on the VO.

The VO calculation is based on two Volume Moving Averages (VMAs). The base of calculation is simple:

VO = [Fast VMA] / [Slow VMA]

The Fast VMA is short term moving average, and the Slow VMA is a long term moving average.

If we use set a VO (5, 20) as an example, the setting would be the Fast VMA to 5 bars and the Slow VMA ito 20 bars. At 5 bars, the Fast VMA is the shorter period and, at 20 bars, the Slow VMA is the longer period.

In essence, the VO calculates the difference between 2 VMAs. This calculation reveals surges in volume and possible abnormal volume activity. The VO tell us where the current volume is in relationship to the average volume over a longer period of time.

If we take a look at the VO setting above, that means that when the VO is over 1 then the Fast VMA is over the Slow MVA and we can conclude that the volume activity in the market is higher than usual. In other words, we can conclude that there is an unusual volume surge based on the parameters we set (5,20).

By knowing how the basis of calculation works in the VO, the indicator becomes a very effective tool in your trading. You should never solely rely on trend based technical indicators. By doing so, you will only see one half of the total picture and it will lead to more losses than wins. When you combine your trend indicators with an oscillator like the VO, you will be able to distinguish whether the changes in the trend are based on abnormal volume activity and make a better decision as to whether to enter a trade.

A final thought is that you should consider a break in support combined with unusual volume activity as panic selling and the opposite is true with a break of resistance with an unusual volume surge which should be considered as greedy buying.

The Only Level Playing Field in Investing – Options

I learned options late in life, accidentally, trawling the pages of the ancient magazine Exchange and Mart in 1995. A full page article showed how an options trader could work from home, (actually in bed) using prices from the BBC’s teletext, back in the day. A lot has changed, but options have been around for centuries-pre-dating shares, being used for pricing ships’ cargoes. In the 1980s options became exchange traded, and fortunes were made. Warren Buffett is a keen options trader, Nassim Taleb was the most prolific. They are not idiots and neither are you if you have read thus far.

Investing is the word we use for a trade that went wrong! Investing is mostly passive and requires you to be right and/or to tuck your stocks away for decades. With markets hitting new highs and valuations stretched, you have to realise the stock market cannot keep going up. If you are happy with paltry dividends and the certainty that your stock will at some point in the future be worth half what it is today, then read no further. QE is no longer on the table and that is all that has separated stocks from realistic valuations.

So what are options all about? In our world we only trade the FTSE100 options. Why? Because the entire index is unlikely to get arrested for fraud/sexual harassment/bogus accounting/toxic products, and all the other nasties that can destroy a company’s rep in a heartbeat. So FTSE is the underlying on which our derivatives are based. Options are the right to buy or sell the underlying (priced by the exchange at £10 per point cash settled) but NOT the obligation. In the same way as insurance companies collect premiums, however, options can be sold. Did you ever see a poor insurance company? When you get it right, selling options can bring you a monthly income stream of a comfortable 2% per month, consistently. Nothing else comes close.

So who are the buyers of options if everybody sells them? Well that is the biggest part of education, and the reason I have traded profitably since 1999. Yes I have had failures, and panics- but I made nice profits in February while the market dropped 10%, despite being a bit dim! I learned about options from an expensive course and from much of the free training on the internet. A while ago I met a like-minded options trader, he runs the website to which I contribute every week, with a real trade, and general tittle tattle about our world. It’s utterly mind-blowing when you start to understand options and the endless combinations, and 20 or more strategies that we use. I love options trading and I want to reach those with a pot of cash who seek income, and a sensible method with risk management, but who don’t know where to start. We are not just about newbies though-there are insights for all. And… we don’t want your money.

Here’s What Happened the Last Time the US Applied Steel Tariffs

While Donal Trump says “Trade wars are good, and easy to win,” history suggests otherwise. In March 2002, George Bush gave into lobbyists and slapped on steel tariffs of between 8% and 30% on imported steel. At that time, Bush exempted Canada, and Mexico because of NAFTA, plus a few developing countries.

Immediately after those tariffs were applied, the S&P 500 dropped over 33% over the next seven months.

Trump is demonstrating that he is no more astute than Bush was, assuming that a trade war is a ‘good thing’. Every time a country applies protectionist policies, other countries do the same, and the losers are the consumers who end up paying more for the finished products.

Governments always react, never fully understanding the end result. Trying to protect an inefficient industry in your country by applying tariffs against a more productive country does not make the domestic industry more efficient, it just makes the finished products more expensive for your consumers. Tariffs are designed to raise the cost of imported goods. They are nothing more than a tax, and in this case, a tax to be paid by US consumers.

So sure, Trump may succumb to steel lobbyist in the US and apply these tariffs to save 143,000 jobs in the steel industry, but these tariffs will hurt over 6 million other workers in industries like the auto industry that use steel to manufacture their products. The end result is the finished products that use steel or aluminum are going to cost more for consumers. So how is this a ‘good thing?’

For US companies that use steel and aluminum, not only will their costs go up, they will be less competitive, and their exports will suffer. And then of course we will have the problem of reciprocal tariffs that have already been threatened by countries being hit by Trump’s steel and aluminum tariffs. The European Union and Canada have already stated that they will retaliate.

Currencies play a huge role in the cost of imported products. Canada is the biggest exporter of steel to the US. The $CAN is currently trading at 77.50 against the $US, meaning all other things being equal, steel priced in $CAN will be 22.5% cheaper than steel priced in the $US.

While these tariffs may help the bottom line for American steel companies, the real losers will be the US consumers. If this turns into a full- on trade war, there will be many more casualties globally, including investors.