Friday, June 22, 2007

My GDX Candlevolume Chart

Although I do use some indicators, the most important aspects of a chart are price and volume. At the website, which, by the way, I think is an amazingly powerful site, there is a graphing method called CandleVolume. CandleVolume puts a lot of emphasis on volume and price, which is why I like it. This type of chart takes into account the number of shares traded in a day, and adjusts the width of each candle to reflect this volume. Basically, days where heavy volume occurred will result and thick candles, and days where there was sparse volume will result in narrow candles. Please have a look at the following chart to get an idea how this effect looks like.

I believe that using CandleVolume can add another dimension to your analysis. One thing I look for is large down days with huge volume. That is a bearish combination, and easy to spot on a chart like this. An example of this occurred at the end of February. Notice the gargantuan red candle on this day. This was a clear sign that bears were in control and more selling was on the way.

CandleVolume is also good at determining the viability of a change of trend. On the above chart, have a look at the end of December. The chart was clearly in a downtrend, but then the price started to rise. An experienced trader could have disregarded this price rise, since it occurred on such small volume. In other words, the bulls did not come out of hiding in full force, so they were not able to defeat the bears at this juncture. The bears hammered the bulls after this point, and the price of GDX continued its downtrend well into January.

Finally, any candlestick patters that involve thicker candles I take more seriously than patterns with less volume. For example, a thick hammer means more to me than a narrow hammer. Hope this helps.

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