I'm a fan of incorporating Volume into technical analysis and have been using VSA (Volume Spread Analysis )for a while. Recently, I have also been spending time to learn about the Weis Wave and Tim Ord's Ord Wave. Tim Ord's book is very useful as he gives a numerical gauge (50%) rather than "less than" or "more than". So here're 2 trades I entered on GBPUSD, one after another.
First I used the M15 chart but switched to the M30 chart to better see the wave volumes. Maybe M30 would be a better choice going forward?
Weis Wave: GBPUSD M15 Trade
I considered the up-waves at (a) to be Effort vs Result. Compared to the long bullish Weis Wave just prior to (a), where the volume was 33, these (a) waves accomplished very little. This suggests that Selling is capping the upward progress of prices.
At (b), we see medium volume in a down-wave. I made the mistake of jumping the gun here, thinking that this is enough down volume to justify a bias change to Short. This is a mistake because in (a), there was a 22 volume up-wave that moved about the same distance as (b). To justify a bias shift to Short, (b) needs to have at least 50% more volume than the previous up Weis Wave.
So I sold a few pips below (b), just to see price retrace to (c) and take out my stop loss. The volume to (c) was 27, and this suggested Ease of Movement. Hmmm. Could it be a bullish bias after all?
The GBPUSD M30 Trade
Then I immediately switched to the GBPUSD M30 chart to take a look at a higher overview.
At point (a) we have an bullish Weis Wave with 31 volume. Then we have shortening of the thrust at (b) as well as Effort vs Result (volume 30+34+29 = 93). At (c) we see a lot of volume come in, but because it's not 50% higher volume than (b), we aren't supposed to go Short here. Therefore the trade mentioned above was wrong.
But price moved to (d) at a volume 30. This was more than 50% less volume than the (c) wave, or than the (b) Weis Wave. In addition, we have a high volume red Shooting Star.
This was all the confirmation I need for going Short. In fact I doubled the trade size from the previous trade and made back the loss from previously, and more.
Conclusion About Weis Wave
- Weis Wave does work in telling you of an upcoming reversal, but sometimes it tells you too early. You've got to wait for the reversal wave to be strong and then a weak pullback first. 50% increase in volume for the reversal wave and a 50% reduction in volume for the pullback is a good gauge.
- Sometimes, your bias may be right but you'll still get stopped out. But if you wait a bit for confirmation and find that your bias is still correct, you can still re-enter.
- Sometimes one timeframe isn't very clear, so switching to another timeframe, especially a higher timeframe one, may help.