We discussed in an earlier post the four main scenarios that one can see as extreme situations in VIRA. We can call them 1 through 4 or maybe if we look at it in (Volume, Price) terms then they will be (Low, High), (High, Low), (Low, Low), (High, High). As far as graphical representations go please find here four sketches of an ‘ideal’ scenario depiction in the VIRA graphs on the app. Now of course we can’t say it enough but this information must be taken along with other market info, such as the actual price of share and trends, the MACD, the Stop Loss values, and any other information that you use in your strategy. But since we are going one step at a time I am showing only the VIRA graph, but as I said it is not the only thing out there.
A few things to know about VIRA:
– The lines can’t go any lower than 1 nor can they get any higher than 3. What this means (among other things) is that if a line is showing a value very close to 2 then it is simply depicting the expected variability of that share for either Volume or Price. We propose that we should only react to special circumstances and not to every single movement in the market. So in that sense we only want to think about reacting to a market that is showing some special movement in price or volume or both. By reacting I mean to take a conscious decision, in our case it is easy for we only have three decisions to take… right? So the farther away we are from the center mark of 2 the stornger the signal is. I have been asked before to produce some sort of rule of thumb value of ‘what is a significant number’. I have to say that it depends on each particular share. Yes it sounds like it needs to be taken case by case… but hey it is only your money!! My recommendation is that you take a share and look at what the variation has been for the year (I always start with the 1 year zoom) and then zoom in to 6 months and then to 3 months. The graphs automatically adjust the scale of the Y axis for the most detailed veiw, so one may think that the gap is great in the 3 month view only to find out that it is really minuscule. So pay attention to both the squiggly lines AND the values. So what are the three decisions some may ask? Those decisions are whether you are going to decide to Buy, decide to Sell, or decide to Hold.
Abdel, why do these graphs look like you drew them with your left hand and blind-folded? Well I really didn’t want to show the exact same output as the moble app, since I am tryng to show the theory behind the tool. Also I didnt want to name and shame one particular share over the others… and also I kinda like the free hand look on these graphs.
Scenario 1: Low Volume, High Price
Scenario 2: High Volume, Low Price
Scenario 3: Low Volume, Low Price
Scenario 4: High Volume, High Price
