Use The Rainbow

A Color-Based System For Short-Term Trading Tips Logo

by Edgar Kraut

Using the Spdr S&P 500 exchange traded fund as an example, here’s how you can apply a simple swing trading system that utilizes the colors of volume bars.

Most technical traders use some combination of price-based indicators to support their trading decisions. Here’s a very simple swing trading system based on coloring volume bars. It can be used either as a standalone trading system or in conjunction with other trading systems. This is how it works:

It’s a very simple color-based trading system that takes only long positions and works as follows:

Image 1

Figure 1: daily chart of the SPDR S&P 500 ETF (spy) from April 17, 2002 to April 17, 2003. Here you see the green, blue, orange, and red bars implemented into the chart. Buy on the green or blue volume bars. Use a 1% trailing stop. Stand aside on the red or orange volume bars.

…Continued in the July issue of Technical Analysis of Stocks & Commodities

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