Volume Indicator Stands Test of Time

02/16/2012 8:30 am EST

Focus: TRADING

Mark Leibovit

Chief Market Strategist, VRTrader.com

Mark Leibovit has trusted one volume indicator for 35 years to generate clear market signals, eliminating the need for many complex indicators and the potential for conflicting information.

My guest today is Mark Leibovit, and we’re talking about his volume reversal indicator. He’s opened it up to the world now, and we’re going to talk to him about how it works and what’s involved.

So, Mark, talk about the volume reversal indicator.

Tim, thanks for having me, and I’m happy to talk about it. The Leibovit volume reversal is a proprietary tool for 35 years. Originally, we had it under the Volume Reversal Survey newsletter, now VRTrader.com. It’s basically an indicator that tells you whether there are more sellers than buyers, or more buyers than sellers in the market.

I created it when I was on the floor of the Chicago Board Options Exchange back in the late 70s, watching volume flow and order flow in the market. It’s basically a very simplistic tool.

When you put it up on the screen—which you can with MetaStock if you get the indicator and license it and bring it to your screen—it just shows you trigger points where suddenly volume has come in to the upside or downside.

Just recently, we’ve been short the market because of what I call a “negative Leibovit volume reversal.” The sellers came in to the market, and we’re following momentum. I’m not putting 50 indicators up on the screen, and I’m not necessarily looking at the news, although I do read the news; I’m just seeing that sellers have come in and now the trend has changed.

Invariably, you see these patterns even before you see the news. Before the riots in Egypt months and months ago, we were seeing the negative volume coming in, and we got short an Egyptian ETF—EGPT I believe is the symbol—just based on what you see on the volume flow.

So anyway, it’s more buyers than sellers, or sellers than buyers. It’s called a volume reversal, and it’s not something the average technical trader is really used to seeing because we’ve kept it under wraps for so many years.

I encourage people who are serious about the market to really look at it because it may be successful and it keeps you intellectually honest because you’re just following volume order flow.

How about the time frame that you feel it works best on: is it daily, intraday; what do you like to use it on?

You know, it’s funny because MetaStock has allowed us to explore other time frames that I’ve never had the opportunity in the past to do.

Basically, I use it on a daily basis, but with a flip of a switch, you can get 13-minute charts, 30-minute charts, five-minute charts, 60-minute charts, monthly charts…

To be honest with you, I haven’t tested on all those other time frames. We’re seeing some really interesting results on some really long-term time frames. For example, weekly charts, which for money managers who really don’t want to be looking at charts on a daily basis, it would be a God send.

So really, the applicability may be more broad-based than I originally gave it credit for.

I use it on a daily basis because I’m pretty close to the markets and I want to follow, but trends can change—as we saw in early October when the market reversed intraday. On a one-day basis, the trend changed, so you have to watch it dally, I think, and maybe use those other time frames as a complement.

You’ve had some real success on gold with this indicator. Talk about how that’s worked out for you.

Well, Timer Digest magazine says I’m the number one US gold timer, and that is partly a result of this work. It kept me long the market, short the market, or we traded back and forth.

Even though I’m a big-picture bull, I think right now we’re in a downtrend and we are short. We put out sell signals, and until I see the volume switch, I’m going to be on the short side on a trading basis, which could be anywhere from a few days to a few months. You just have to watch the numbers.

I can’t give you a number where gold is going at the moment. I’m hoping recent support holds, but I’m just going to take it a day at a time here.

What I like about it is even though I’m really bullish on gold and I know it’s going dramatically higher in the years ahead, this tool allowed me to make another decision that needed to be made here.

You have to protect capital and realize your timing may be off on the big picture, and shorter term, you’ve got some real issues that you have to handle as a trader.

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