One of the key lessons that I learnt while reading the CMT book is that oscillators main signal are divergences between the indicator readings and the price action. On the 15th of March 2018 we had two clear signals by the XBP Volume Ratio indicator, which measures the accumulative forces of bulls and bears. This indicator is a leading indicator that anticipates future price action.
Is this screenshot we have 2 time frames that I use, on the left 4181 ticks chart, with both the 14th and the 15th of March 2018, and on the right the 1597 ticks chart with only the 15th of March.
I’ve marked the 2 main divergences spotted during the day. Number 1 occurs before 12pm by NYSE time (red vertical dotted line) when price marks a new day high with big volume (blue bars painted with XBP Price Bars indicator), while the XBP Volume Ratio indicator shows a clear divergence with the price action.
The second divergence, number 2, occurs around 14:30, when the market retests the lows of the day and fail to continue falling. XBP Volume Ratio shows a strong divergence with the almost flat price action. Interesting to see that this last action occurred around the yesterday’s low price level. These days I’m investigating a lot about these key levels. I’ll post soon about it.
I’ve highlighted both actions in the 4181 ticks chart, but you could also see the same action in the 1587 ticks chart on the right but with added noise. It is important to adjust the time series to have one that let you see “the forest from the trees”. Whatever time you use you shall be able to assess what’s the main action occurring in the market. The following, lower, time shall allow you to enter and exit with a higher level of detail in the direction detected in the higher time.
Note: I’m using the Fibonacci series to move up and down the time frames. This eliminates for me any unnecessary investigation about a right time frame for the market.