Using Volume to Detect False Breakouts


Using Volume to Detect False Breakouts — with David Moadel hello friends and welcome to looking at
the markets with David Modell I’m gonna show you a way to help you detect false
breakouts using volume I’ve talked about divergences for example between the
price going in one direction on the candlesticks and then the RSI line going
in another direction oftentimes the RSI line tells the truth while the price
action of the candlesticks is lying to you well you can use volume much in the
same way I’m going to show you three examples real-life examples right now
but first I just wanna let you know that if you need help with trading or
investing and you definitely want to have a plan otherwise you’re just doomed
from the very start if you don’t have a plan you can contact me for coaching at
David Modell at gmail.com let’s get into it this is a BB V which is AB V and it
is a perfect real-life example of a divergence between the price action of
the candlesticks and the volume ok so you’ve got the volume telling the truth
because you see just because the candlesticks are trending upwards and
that could look like a breakout in the making well it could also be a head-fake
and when you’ve got the price action going one way but the market
participation or the volume the trading volume going in the opposite direction
that tells you that fewer and fewer people are really participating in this
this swing high as they say ok and so there’s not much conviction behind the
move you don’t the institutional investors the whales
the high-volume block trades coming in with thousands and thousands or hundreds
of thousands or millions of shares okay so you want to trade with the whales you
don’t want to swim against the whales okay
I don’t want you to drown alright so I noticed that the price action here is
going upwards but look at the direction of the volume right below it it’s going
downwards okay so you’ve got paltry volume not much volume already and it’s
just getting lower and lower and so that tells me that this is not a breakout
that I want to buy okay and so I’m not gonna buy here I’m just gonna leave it
alone am i telling you to short it no that could be a dangerous game because
all it takes is one whale to come in and buy up you know bid up the price by
buying large blocks of shares okay and shorting is more risky game than going
long but you might want to at least not take the long side of this trade if you
see the price action going in one direction the volume going in another so
this is definitely a false breakout as you can see by what happened afterwards
red candle after red candle big red candles okay so what have been pretty
painful if you had bought here thinking oh this is a breakout in the making nope
not so much the volume told the truth there’s a divergence here so it’s not a
terrible idea to put the volume bars at the bottom of your chart if you want to
gonna give you a couple more and by the way that was a three minute candlestick
chart each candlestick representing three minutes of price action this could
also be used for swing trading with the daily candlestick chart or you know
whatever timeframe you like it could also apply and it doesn’t just have to
be stocks I’m going to show you how it could work with the cryptocurrency as
well alright but let’s look again we’re at the three minutes candlestick chart
for intraday trading this is a good way to go one way to go and can you find the
divergence well you might be looking in the middle don’t do it look all the way
left here up up up right and you’re thinking oh man I should buy here cuz
it’s a breakout nope it’s a fake out I don’t know if you could see it but
there’s a volume bar here okay it goes all the way up here and then it just
goes down and down and down okay so again you’ve got the price action
going up and then the volume going down sometimes it’s hard to tell with the
volume bars you really have to look they might overlap each other with the with
the candlestick or it just might you know the the downward divergence might
be kind of subtle alright it might just go down slowly compared to how fast the
the candlesticks are going up alright so don’t look for you know don’t don’t look
for a huge obvious necessarily move downwards in the volume it could be kind
of subtle yeah you kind of have to look for it sometimes but there it is price
action going up at the same time right below it you see the volume bars going
dramatically down and then it just kind of keeps going down okay and then what
happens afterward well this was not a breakout it was a fake out and down
down down down ouch right that would have been pretty painful if you had
bought up here you would have been had faked no fun and I promised a
cryptocurrency can you find the head fake and this is Bitcoin against the US
dollar BTC USD three-minute candlestick chart I
hope you found it there it is okay yeah the price action was going down it
bounced up and you’re thinking oh this is the start of a breakout yeah not
really okay can you see how the price action is going up but and again it’s
kind of subtle you might have to kind of use your imagination a little bit to
connect the the tops of these volume candles here but you can see generally
it’s trending downwards okay volume going up and right below it volley I’m
sorry price action going up and then right below it volume bars trending
downwards at the same time and what happened afterwards it’s not always
going to happen like this but it certainly went down and down and down
ouch right that wouldn’t have been too much fun so that is a textbook example
it does not always happen like that alright so I don’t want you you know to
shore necessarily because again all it takes
is a few institutional investors or even just one to bid the price right up
violently sometimes okay so be aware of that be careful and it doesn’t happen
always like this no indicator is a hundred percent perfect all right I want
you to make your own decisions don’t do something just because I’m telling you
do I’m telling you that it’s something to do
okay I’m not telling you that this always works so and also have a plan by
the way I want you to have a plan for your trading or investing if you liked
this video then please give it a thumbs up on YouTube if it’s helpful to you and
subscribe to my channel if you haven’t done that already and hit that
notification Bell on YouTube and if you want that coaching to help you put
together a plan because I don’t want you just using charts and you know you don’t
have an overall plan because then you’re gonna be in trouble
alright you can contact me for the coaching at David Modell at gmail.com
thank you so much for watching and listening I’ll talk to you again soon

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