Wednesday , 28 June 2017

Time the Market Using Market Strength & Volatility Indicators – Here’s How

There are many indicators available that provide information on stock and indexinvesting-hold-buy-sell movement to help you time the market and make money. Market strength and volatility are two such categories of indicators and a description of  six of them are described in this “cut and save” article. Read on!

By Lorimer Wilson, editor of (Your Key to Making Money!) (A site for sore eyes and inquisitive minds) and the FREE Market Intelligence Report newsletter (sample here).

There are over 80 indicators in all divided into 6 categories (trend, momentum, volatility, market strength, support/resistance and cycle). That being said some are very technical, some are infrequently used and some are more effective than others. The most popular indicators, and also available for use free at online charting service such as and/or, are those regarding:

  • market trends (read an article on these indicators here)
  • market momentum (go here) and
  • market strength and volatility

This article deals with the Market Strength and Volatility Indicators as follows:

A. Market Strength Indicators

1. On Balance Volume (OBV)
– focuses on the importance of volume and how it can affect a given price and the security’s momentum, the premise being that volume precedes price movements.

It works this way:
a) If volume is decreasing when the price of a security is rising then it is a sign of increased selling pressure, which if continued, will send the price of the security lower.
b) The opposite is true with increasing volume on up days, which is a sign of buying pressure.
c) If the OBV is moving in the same direction as the existing trend, it is a signal that the strength of the trend remains.
d) A 20-day moving average of the OBV is often added and when the OBV crosses the 20ma the divergence signal of a trend reversal is confirmed.

2. Accumulation/Distribution
– attempts to gauge supply and demand by determining whether investors are generally “accumulating” (buying) or “distributing” (selling) a certain security by identifying divergences between the security price and volume flow.
In practice, this indicator is used to find situations in which the indicator is heading in the opposite direction as the price. Once this divergence has been identified, the trader will wait to confirm the reversal and makes his/her transaction decisions using other technical indicators discussed here.

3. Chaikin A/D Oscillator
– monitors the flow of money in and out of the market by plotting the difference between the 10-day exponential moving average and the 3-period exponential moving average of the Accumulation/Distribution. This simply compares the money flow to the price action of a security which, in turn, allows the chartist to recognize tops and bottoms in short cycles.
It is suggested that the Chaikin Oscillator be implemented in conjunction with a 21-day envelope based on the price of the security. Price envelopes are plotted at a set percentage above and below a moving average to indicate overbought and oversold levels.

4. Money Flow Index (MFI)
– used to measure the strength of money going into and out of a security and, as such, can be used to predict a trend reversal.

It is similar to the RSI but accounts for volume whereas the RSI only incorporates price. The MFI is range-bound between 0 and 100 and is interpreted in a similar fashion to the RSI.

5. Price by Volume (PBV)
– the standard volume histogram re-applied to price instead of time so, instead of being able to determine when a stock is going in and out of favour (indicated by increasing volume levels over time), PBV enables you to determine the level of buying or selling interest at a given price level.

Volume strength (as shown by the horizontal length of the PBV histogram and indicating the amount of shares that traded at the given price level) and volume type (as shown by the two different colours seen on each bar and referring to the number of shares sold compared to the number of shares bought) allow you to determine the strength of a particular price level. Once you have this information you can combine it with trend lines and other indicators to determine support and resistance levels.

B. Volatility Indicators

Bollinger Bands
– a band plotted two standard deviations away from a 21-day simple moving average.

Because standard deviation is a measure of volatility, Bollinger bands adjust themselves to the market conditions. When the market becomes more volatile the bands widen (move further away from the average), and during less volatile periods the bands contract (move closer to the average). The tightening of the bands is often used by technical traders as an early indication that the volatility is about to increase sharply. The closer the prices move to the upper band, the more overbought the market, and the closer the prices move to the lower band, the more oversold the market.

There you have it – an extensive and in-depth assessment of how to evaluate buy/sell decisions for any security using the 5 market strength indicators and the most frequently used volatility indicator.

If ever there was a “cut and save” investment advisory –  this article is it!

Stay connected!

Related Articles:

1. Buy, Hold or Sell? Time the Market By Watching Change In Market Trends! Here’s How

The trend is your friend and this article reviews the 7 most popular trend indicators to help you make an extensive and in-depth assessment of whether you should be buying or selling. If ever there was a “cut and save” investment advisory this article is it. Read More »

2. Go With the Flow! Time the Market By Using These 6 Momentum Indicators

Yes, you can time the market! Assessing the relative levels of greed and fear in the market at any given point in time is an effective way of doing so and this article outlines the 6 most popular momentum indicators and explains how, why and where they should be used. Read More »

3. Don’t Try to Time the Market; Dollar-Cost Average Instead. Here’s Why

Everyone is worrying that we are at or near a market peak and this has investors extremely hesitant to buy stocks for fear of a big decline or perhaps even a crash. Obsessing over the risk of a crash, however, could lead to analysis paralysis but there is a basic investing strategy that can save investors from losing too much hair as they make the decision to buy stocks. It’s called dollar-cost averaging. Let me explain how it works and why it’s great for investors with long-term investing horizons. Read More »

4. Time, Not Market Timing, Is Key To Investment Success

Time, not timing, is key to investment success. The bull market will end at some point. Stocks will go down and we will eventually see a bear market. These things happen. When it happens is up to Mr. Market. Let me explain. Read More »

5. Bubbles: Doing NOTHING Is Often the BEST Response – Here’s Why

The benefits of being able to detect a bubble, when you are in its midst, rather than after it bursts, is that you may be able to protect yourself from its consequences. [Below are possible] mechanisms to detect bubbles, how well they work and what to do when you think a particular asset is in one. Read More »

6. The Best Times to Buy & Sell (or not) Your Stocks to Maximize Returns

Statistically speaking there is an optimal time to buy or sell a security and knowing such, or at least knowing when not to do so, would be quite beneficial to your financial health. This article provides the answers as to what are the best months, and work its way down to half-hours of the trading day, to engage in trading. Read More »

7. Part 1: Should Financial Market Cycles Play A Role In Your Decision-making Process?

Financial markets are influenced by relatively predictable cycles…[and should] play a big role in one’s decision-making process just as they do in our day-to-day lives. This article, part 1 of a 3 part series, takes a look at several and discusses their relevance to one’s investment management process.

8. Should Financial Market Cycles Play A Role In Your Decision-making Process?

Financial markets are influenced by relatively predictable cycles and should play a big role in one’s decision-making process just as they do in our day-to-day lives. This article takes a look at several and discusses their relevance to one’s investment management process. Read More »

9. Part 2: What Role Do Oscillators, Standard Deviation & Mean Reversion Play In YOUR Investment Management Process?

In the investment management process…[it is important to] actively monitor both short- and long-term cycles…in order to manage expectations based on historical patterns…[as well as] oscillators – diagnostic tools that help us measure a security’s upward and downward price volatility. To understand how oscillators work, though, you first need to become familiar with standard deviation and mean reversion. In this article, part 2 of a 3-part series, we do just that.


  1. Excellent post, i did read it twice so sorry for that, i have passed it on to my mates, so with any luck they’ll like
    it as well.