Question

Hi Anna, I’ve read nearly twenty books on technical analysis over the past 3 years while learning to trade. I’m halfway through Yours and it is already among the top 3 most helpful to me (along with John Carter’s and Alexander Elder’s work,) so thank you very much. What do you find to be the best parameters for setting the average volume line? Ie what look back period and do you prefer sma or ema? Do you use different settings for different chart timeframes? Thank you again for your book and your time on this! Brian

Answer

Hi Brian Many thanks for your email and very kind & generous words. They are much appreciated, particularly coming from someone who is a keen student of technical analysis. With regard to average volumes – this is always a tricky issue for a number of reasons.

First, it all depends on the market & instrument. Second, for markets with a physical exchange there is always a surge at the open and close which can distort the session volumes. Third, in 24hr markets – eg forex – the average vol in the London session will be substantially higher than the average vol in the Asian session. And finally, average volumes in one timeframe will vary as you move to another timeframe. However, that said volume is always relative, so if you have the distortion of a big surge then you need to bear this in mind when considering volume in the remainder of the session, and one way to get around this issue is to decrease the number of price bars on display which then brings the volume back into alignment. This is also an issue in the forex market for example as the trading session moves from the UK/US markets into the Asian session overnight which generally has much thinner liquidity and lower volumes. Moving up and down time frames also helps here to isolate the extremes and filter out any extreme volume bars which may make subsequent volume bars very small. Hope the above helps. Kind regards – Anna