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Study Guide for The New Trading for a Living by Dr. Alexander Elder

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FIVE

Volume and Time

  1. Answer 5-1: A

    Each trade reflects a financial and emotional commitment by two traders: a buyer and a seller. Since one of them is bound to be right and the other wrong, volume represents the activity of winners and losers. It surges when losers panic. It mirrors current activity but doesn't forecast the future.

  2. Answer 5-2: 1 = B; 2 = A; 3 = C; 4 = D

    Trends tend to persist when the volume is steady or rises in an orderly manner. They usually expire with either a bang or a whimper—a burst of volume or its drastic shrinkage. The trend cannot continue after masses of losers start leaving.

  3. Answer 5-3: 1 = D; 2 = A and B; 3 = C and F; 4 = E and G

    Rising or steady volume confirms trends. When prices rise to a new high or fall to a new low while volume shrinks, it tells us that the price trend is likely to reverse or at least to pause.

  4. Answer 5-4: B

    There is a powerful rally going on, with a steady pattern of higher highs and lows. CPST is slowly declining from its latest high, while volume is shrinking. Wait for a bar or a few bars that fail to reach a new low for this minor downmove—and then go long.

  5. Answer 5-5: C (I, II, and III)

    OBV is created by adding each day's volume to a running total when a trading vehicle rises and subtracting it on the days when that vehicle falls. OBV confirms bull moves when it rises to a higher high than at the previous peak; it confirms declines when it falls to a lower low than at the previous bottom. Prices represent ...

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