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Getting the market to talk to you

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As an active trader himself, Ralph Vince cooked up trading indicators to meet his need for insights about market action based on factors such as volume flows or “itchiness” for change.

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Tim:

My guest today is Ralph Vince. We're talking about his indicators exclusively available on TradeShark, and how you can use them to make great trading decisions. Ralph, you've got a lot of experience in the trading industry over many many years. What kind of sets your indicators apart from others that are out there? Ralph

Vince:

Well, these have been around a long time. I've used them in the markets myself, and continue to use them in the markets to this day. They're not just something that was just cooked together to have extra indicators and a piece of software. I have cooked up each of these for a very specific need that I had, to fulfill a very specific need that I had in analyzing and trading the markets with my own money.

Tim:

What is it about TradeShark that kind of sets it apart? I'm sure over 35 years you've seen a lot of different programs too. Ralph

Vince:

Right. I like the ease of use. If you're going to use a piece of software, you're better off to use a piece of software that's professional piece of software with a professional user interface. I don't know anything that's easier to use than TradeShark.

Tim:

Sounds good. I was going to say that even as a programmer, you find the ease of use something that really helps out your trading. Ralph

Vince:

I wouldn't try to duplicate it, and I wouldn't want to.

Tim:

Ralph, I know one of the things you did earlier on was manage money, and be a part of the Abu Dhabi Investment Authority. What was that like? Ralph

Vince:

One of the things that I really learned about there was the importance of liquidity, and what markets can take what they can handle and so forth. Most importantly, liquidity is a price driver. This is something that is very overlooked, I find. Most indicators don't take this into account whatsoever. It's really not the advantage that a lot of people say it is. You can be in, you can be out, you can be fast. It's the same thing. It's pretty much the same exercise. If you're scaling in and out of positions, it almost pays to be a larger trader than in your let's say a one lot ES trader. But it's a similar exercise.

Tim:

During that time when you were managing money, is that when you came up with the volume bar rules indicator? Ralph

Vince:

Pretty much. I had to go back a lot farther than that. I was working in lower Manhattan. I was a young guy. I had about a two and a half hour subway ride on the six, way up on the Northeast part of the Bronx. I would get a Wall Street Journal before I got on the subway. What am I going to do? Sit there and look at everybody on the subway for two and a half hours? Back then that was part of the Dow Jones averages, and the volume was on the bottom. I would just sit there and study them. I noticed this pattern in these volume bars back then. When I got to ODIA I started working on this as an indicator for myself back then. That's what I still use today. I would say it's my primary indicator for when I'm going to do something in the market.

Tim:

I can gather that it's about volume, of course. That's in the name. What is it about volume that you're looking for? Ralph

Vince:

I'm looking for changes in the flow of it. Days where something abrupt, or even bars. I mean, this thing I've looked at them one minute, bars and it works there. It's almost like it gets back, let's say the pace of the old electrolux It's the same thing. What's changing? If something's changing, the character of liquidity at this moment in time is changing. The market is going to make a move in a different way. There's a ton of information here and usually when those things are giving us an indication, it's that something's going to happen on the next bar.

Tim:

Talk about what it looks like on the TradeShark charts. Is it a line or a signal? What is it? Ralph

Vince:

This is an interesting thing to bring this up, because I talked about this with the programmers at TradeShark for a while and how best to display this thing, because if you don't display it right it's really easy to miss a signal in it. I don't want to miss a signal in this. Okay? I like making money, and this is the indicator that does just that for me. I wanted a way to illuminate when these types of conditions occur. They do exactly that. All the volume bars appear as gray, when we get a signal it shows up as a red bar. You can't miss it.

Tim:

Even with all the complex math behind it, when I bring it in and drag it into my chart that easily, I can see this happening? Ralph

Vince:

If today is a red bar, something is going to happen, Tim.

Tim:

Excellent. Talk about what kind of a trader would use this. A stock trader, options trader, futures, what is it? Ralph

Vince:

Really any of the ones you just mentioned. I like it particularly on the broad indexes, and on some of the volatility ETFs that I do a lot with. It shows up very nicely on there. It also shows up on commodities pretty well, but it uses the combined volume of all contracts. Unfortunately TradeShark has that right when they put this together and display it to you. You don't have to worry about making that mistake. Again, they've thought of everything, and this one, we've covered everything making sure that this shows up, and shows up right. It will work in really any market you're looking at. It works great on individual stocks. Especially the more high-cap stocks.

Tim:

Ralph, how about time frame? Daily, monthly, weekly? What's it work best on? Ralph

Vince:

Works on all of them, Tim. I use it on daily, I use it on weekly, and I use it on monthly as well. It works the same on all of them, and has over the years.

Tim:

I want to talk to you about how you combined some of your indicators and look at them together, but let's talk about the second one the red compression indicator. What is that looking at? Ralph

Vince:

Red compression is a way of measuring how twitchy the market is. Is it ready to move or not? It tells me when is a trend coming to an end, when do I need to be looking for this market to start trending again, when is a trend continuing, and it gives me good solid answers to that.

Tim:

In know many of these things are proprietary, but can you give us an idea of the kinds of things that it looks for? Ralph

Vince:

Well, it looks for, it looks at let's say that the relity of changes in price. Is this market winding up, getting ready for a move, or is it trending. It does that, and there's other indicators out there that do that. The reason I like this one is because it's more responsive. It responds quicker. All of a sudden it will show me something, where the other similar types of indicators that measure this type of thing seem to be a bar or two, a step or two behind this one.

Tim:

Ralph, are you combining the volume bar rules indicator with red compression to find good trades? Ralph

Vince:

Yes. I combine all these together. Particularly, let’s say red compression and volume bars all combined together. Usually when I do, it will be like red compression at a shorter time period than the volume bars. In other words, if I'm in a trending trade as an exemplified by red compression ... Red compression's expanding, it's expanding, and now it's starting to roll over, I'll look at the weekly volume bar rolls. Last week was, let's say a red bar on Vargedos I know I have to be getting out of that market. There's just no sticking around there after that.

Tim:

It sounds like the more of these that you have, the better you're going to do as a trader. The more it's going to help you make these decisions as a trader. Ralph

Vince:

Absolutely. I wouldn't want to be without any one of these.

Tim:

Let's talk a little bit about four feedback indicator. What does that tell you? Ralph

Vince:

This really tells me whether I'm in a trend or not. It's a trend following indicator. A low pass filter, but it has an interesting characteristic to it. Unlike any other low pass filters where, let's say with a moving average coming up on price and it tends to get real slow, and gets to be an old man coming up on price. Forward feedback will chase into that price, because really what forward feedback is trying to do is catch up to price much the way an outfielder tries to run to catch a baseball. So, when forward feedback catches up to price in a trend, much like with red compression rolling over from a high reading, it tells me this trend is just about out of gas. That's not to say it can't continue after some serious consolidation, but it's running out of gas. I need to look to get out of here, or maybe to sell some time premium and options on this thing and so forth.

Tim:

Each of your indicators talk about very different things, and yet you can use them all in conjunction to kind of build a picture. Is that a good way to describe it? Ralph

Vince:

Exactly. It builds a narrative of what's going on. If we take a snapshot in time, and we look at what each of these indicators is telling us at that snapshot in time. It gives us a narrative. Sometimes that narrative is just screaming buy this market, okay. Those are the nice easy ones when they line up like that. Lots of times it's a lot more nuance than that, which is all the more reason why I like to use a tool bag of nonredundant indicators. To me, I like these because no one else is using these indicators. I don't know anyone else who's looking at volume bars, or forward feedback, or something like that other than users of TradeShark of course.

Tim:

Right, so they have a huge advantage obviously, because these are available exclusively on TradeShark. How easy is it to bring all three of them in at one time and take a look at all three? Ralph

Vince:

Oh, it's easy. You can put it all on one chart if you want to. I prefer to put them all on separate tabs, but that's just my own preference.

Tim:

You know, Ralph, I know that trust is a big part of what tools a trader decides to use. How is it that you built your trust in TradeShark to now release these exclusively through them?

Ralph:

The software is absolutely superior to anything else out there that I have seen, to any other platform out there. Not just in terms of ease of use but in terms of reliability but more than that, I've known Lou going back more than 3 decades. And I know him not just one on one, but I know him through other people who have dealt with Lou. Everyone, unfailingly, has nothing but the best things to say about Lou, about Lane, about the whole organization, even the programmers that I had to deal with in putting this together were absolutely top notch guys.

Tim:

I guess that culture is probably built into how they treat their customers as well, I would imagine that is a big part of it. If somebody has a question about your indicators, or not sure how something works, can they call them and get those answers?

Ralph:

These guys know how they work, these guys know exactly how to implement these indictors this is a top notch organization, they are going to give you top notch support. I sure expect that they will give the same support they gave me.

Tim:

Ralph, thanks for your time. Ralph

Vince:

Thank you, Tim.

Tim:

We've been talking with Ralph Vince about how he uses TradeShark and his exclusive indicators.

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