I'd like to coin a new acronym, LVBS. Low Volume Bull S...
I've been trying to master a setup I have for the YM Futures. It includes 2 rules to avoid LVBS.
1) No more scalping trade entries after 11:30am ET.
2) No entries anytime the SMA(21) of the 1 minute chart volume < 500 contracts/minute.
I trade the YM Futures (E-mini Dow Jones Industrial Average) from 9:45am to 11:30am ET, if I see a good setup. The chart above is from 11/1/2016. The light blue lines are the standard (20,2) Bollinger Bands. The dark blue lines are Keltner Channel boundaries (20,1.5).
Notice from 11:15 to 11:28 the BB's are inside the Keltner Channel. This is a type of "squeeze". You can "normally" expect a break out from this squeeze and a nice vertical move for about 5-7 candles or so. Everyone who knows this setup is watching for it. At 11:27 you get a nice little pop and a close for a green candle. Then 11:28 you get a nice continuation (or follow through). This will suck in a lot of impatient traders with hair triggers. Before the candle closes at 11:29 it comes all the way back down to create a Gravestone Doji. If you waited for the candle to close, like you should, you'd have been spared the heartache of this low volume BS. Because the next thing that happens is a slam back down, a break below the BB and the Keltner Channel and a close near the low. Then 11:31 you see a bright red candle continuing the down move. And you know bearish moves can move fast, so you gotta get in short pretty fast or lose out on a significant part of the move. This is surely the "real" move right? So the longs exit for a loss, and maybe go short, while others enter short.
But what happens then? Oh no, the candle closes with a Hanging Man Doji. Didn't we just learn to wait for the candle to close? Now it floats back up with closes above the 8 EMA, 20 SMA, and even the 50 SMA. Its also past the 50% Fib, 61.8% Fib, 76.4% Fib (a bogus Fib but mistakenly used so much you have to consider it), and just clears the 78.6% Fib (the real Fib). This had to have taken out a lot of stops and caused losses.
I call this a BS move. If its not manipulation to make some big players money from running stops, it sure looks like it. These kinds of moves seem to happen more readily starting around 11:30am ET or anytime there is low volume.
Look at the volume subchart. See the purple line. That's a 21 candle simple moving average of the minute by minute volume bars. I have found that when it drops below 500 contracts per minute, BS moves become more likely. A logical explanation is that its easier to manipulate the market on lower volume. Or, the more conservative explanation is that low volume breeds more random price action.
So the moral is, don't make money in the morning and give it back in the afternoon like I did before I woke up and realized I don't have to scalp in the afternoon.
