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
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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