Time Segmented Volume (TSV) – Strategy And Rules
Analyzing price movements to find trading opportunities can be a daunting task, even for an experienced trader, but one tool that can help is the Time Segmented Volume (TSV). What do you know about this indicator?
The Time Segmented Volume (TSV) indicator is a technical analysis indicator that measures the buying and selling pressure in a market by comparing the trading volume when the price closed higher than the previous bar’s close (positive volume) with the trading volume when the price closed lower than the previous bar’s close (negative volume) within a specified time segment.
In this post, we will take a look at most of the questions you may have about this indicator: what it is, how it works, and how you can improve your trading strategies with it. Read on!
Key takeaways
- It’s an indicator that segments the price and volume data based on timeframes and uses them to calculate positive and negative volumes over the time segment.
- We show you a backtested Time Segmented Volume (TSV) indicator trading strategy.
- We have covered all the technical trading indicators that exist.
What is the Time Segmented Volume (TSV) indicator?
Created by Worden Brothers Inc., the Time Segmented Volume (TSV) indicator is a technical analysis tool that segments the price and volume data based on timeframes and uses them to calculate positive and negative volumes over the time segment. It is an oscillator, with a baseline as the zero line. The indicator going above the zero line indicates rising buying pressure or accumulation, while a fall below that line indicates increasing selling pressure or distribution.
The TSV measures the buying and selling pressure in a market by comparing the trading volume when the price closed higher than the previous bar’s close (positive volume) with the trading volume when the price closed lower than the previous bar’s close (negative volume) within a specified time segment.
The indicator can be used within a trading strategy to generate or confirm trade signals. Another important aspect of the indicator is its divergences from the price action. When the indicator’s movement diverges from price swings, it could signal a potential price reversal.
An example of how TSV might look is illustrated here (lower pane – 13 day TSV):
How does TSV differ from traditional volume indicators?
The TSV differs from traditional volume indicators in that it segments price and volume data and calculates its values in that segmented time interval. This is unlike many traditional volume indicators that calculate cumulative values.
Also, it uses both the price and volume data in its calculation, as the volume data is multiplied by the price change in its calculation. In using the product of the price change and trading volume, the indicator estimates the pressure on price action either in the buying side or selling, depending on the direction of the price change.
Time Segmented Volume (TSV) trading strategy – trading rules, returns, and performance
Can you make money on the Time Segmented Volume indicator? There is only one way to find out, and that is via backtesting.
You can trade any indicator in multiple ways, but we make the following trading rules:
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We apply these trading rules to all stocks in the S&P 500 from 1990 until today. This backtest included delisted stocks to avoid survivorship bias. We allocate 20% to each position, and thus we can max have 5 positions at any time.
We get the following equity curve:
There have been 2735 trades, and the average winning trade is 0.63%. The win rate is 55%, and the max drawdown is 38%. Our capital is invested 82% of the time over the whole backtesting period.
Time Segmented Volume (TSV) – trading code
For your convenience, we provide the complete code (Amibroker) for the strategy (if you are a member):
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Why is TSV important in trading?
The TSV is important because it helps traders to determine whether an asset is under accumulation, which means that it is buying, or when it is under distribution, meaning that it is selling. When the indicator rises above the zero line, it means more people are buying, and the price might go up. So, it may be time to buy.
On the other hand, when the indicator falls below the zero line, it means more people are selling, and the price might keep going down. So, it may be time to sell. The indicator divergence from price swing is also used to anticipate price reversals. Some technical traders combine the indicator with other tools to create reliable trading strategies.
What does TSV tell about market strength?
The TSV tells an important story about market strength by showing who — buyers or sellers — is dominating the market within that time segment. It compares the trading volume when the market gained (positive) to trading volume when the market lost (negative volume) over a time segment and uses the values to estimate where the market strength lies.
If the market keeps posting positive trading volume — the indicator rising above the zero line — then, market strength lies with the buyers. If the market keeps posting negative volume — the indicator falling below the zero line — then, the market strength lies with the sellers.
How do traders use TSV to spot trends?
To spot trends, especially short-term trends, traders check the direction of the TSV line. If the TSV line is rising and crosses above the zero line, traders believe an uptrend is in play, even if only in the short term.
Conversely, if the indicator is falling and crosses below the zero line, traders believe a downtrend is in play, even though it might be a short-term trend.
What are the key signals from TSV?
The key signals from the TSV indicator are as follows:
- Zero line crossover: the zero line is taken as the baseline. So, when the indicator crosses above it from below, it means the market is rising. Likewise, when the indicator crosses below the zero line from above, it means the market is declining
- Indicator divergences from price swings: Divergences between the indicator and the price swings suggest a potential market reversal. For instance, if the price is posting a lower swing low while the indicator is positing a higher low, there is a bullish divergence and the price is likely to reverse to the upside.
How does TSV help in identifying reversals?
The TSV helps in identifying reversals when it shows a divergence from the price action. When the price is printing a higher swing high and the indicator is printing a lower high, it means there is a bearish divergence, and the price is likely to reverse to the downside.
On the flip side, when the price is posting a lower swing low while the indicator is positing a higher low, it means there is a bullish divergence and the price is likely to reverse to the upside.
Can TSV predict market tops or bottoms?
Yes, the TSV can predict market tops or bottoms, but as with other indicators, it is not always correct. Sometimes, it will predict the market top or bottom well; other times, it does a very poor job.
The TSV signal that can be used to predict the market top or bottom is the divergence signal. When there is a bearish divergence between the indicator and the price action, it could mean that the price has topped at least temporarily. Conversely, when there is a bullish divergence between the indicator and the price action, it could mean that the price has bottomed at least temporarily.
How do you interpret rising TSV values?
To interpret rising TSV values, you have to check where the values are relative to the zero line, which is taken as the baseline. When the values rise above the zero line and stay above, it means that there is increasing buying pressure in the market, so it’s either the price is already rising or the market is in an accumulation phase — where the smart money is busy taking long positions. In this case, the price is likely to go up.
What does a falling TSV indicate?
To interpret falling TSV values, you have to check where the values are relative to the zero line, as that is taken as the baseline.
When the values fall below the zero line and stay lower, it means that there is increasing selling pressure in the market, so it’s either the price is already falling or the market is in a distribution phase — where the smart money is busy disposing their long positions or taking short positions. In this case, the price is likely to go down.
Can TSV be used for all trading instruments?
No, the TSV cannot be used for all trading instruments because it is calculated from both price and volume data. For instruments such as spot forex where the volume data is not available because it doesn’t trade on a centralized exchange, the TSV cannot be used.
The indicator can only be used in instruments, such as stocks, bonds, and futures, which trade on central exchanges where the trading volume is documented.
How does TSV apply to stocks versus commodities?
How the TSV applies to stock versus commodities is more or less the same, as both instruments are traded on central exchanges that document trading volume — stocks are traded on stock exchanges like the New York Stock Exchange, while commodities are traded on futures exchanges like the CME and ICE.
With the price and volume data available, the TSV can be calculated for both assets. How well it works will depend on the market conditions and the trader’s strategy.
What are common settings for TSV in day trading?
The common settings for TSV in day trading are usually a TSV period of between 9 and 12 and a moving average length of 7. However, this does not mean that these are the settings that offer profitable trading with the indicator for the market and strategy you are trading.
To know the best settings for you, backtest your strategy with different settings to see the one that works best.
Is TSV effective in volatile markets?
No, the TSV is not so effective in volatile markets, as it is highly prone to whipsaws in such market conditions. When the market is highly volatile, it may be wise to stay on the sidelines until the market condition becomes favorable. You may have to combine the TSV with other indicators or analysis tools to get the best out of it.
How to combine TSV with other indicators?
To combine the TSV with other indicators, you have to first understand how the indicator works so you can combine it with indicators that complement it, not the ones that work like it.
Since the indicator shows when there is buying and selling pressure in the market — and preferably, you want to trend along with the main trend — you may combine it with a moving average or trendline that shows you the direction of the main trend.
What are the limitations of using TSV?
The limitations of using the TSV include:
- Being a leading indicator, it can give a lot of false signals where it predicts a reversal that never happens.
- It cannot be used as a standalone trading strategy.
- It doesn’t tell you the market condition and can give multiple false signals in a choppy market.
How reliable is TSV in different market conditions?
The TSV can be reliable in some market conditions when used the right way. It tends to work better in a trending market than in a range-bound market. If used with other analysis tools to create a profitable strategy for a trending market, the indicator can be reliable.
But in a choppy market, the indicator can give a lot of false signals.
Can TSV be the sole basis for trading decisions?
No, the TSV cannot be the sole basis for trading decisions, as it is just an indicator, not a standalone trading strategy. If you use the TSV as the sole basis for your trading decisions, you will get a lot of false signals and lose a lot of money in the market. Your trading decisions should be based on a robust trading strategy that has been proven to be profitable.
What are some mistakes to avoid when using TSV?
The mistakes to avoid when using the TSV include:
- Using the indicator as a trading strategy on its own
- Trading with the indicator without backtesting your strategy
- Trading indiscriminately without checking the market condition
- Not having a clear risk management plan
How to set up TSV on a trading platform?
To set up the TSV on your trading platform, you first check whether the trading platform has a built-in TSV indicator. If it doesn’t have it, you will need to get a custom-made Time Segmented Volume indicator and install it on the platform.
After you have that, you can go to the indicator section of the platform and double-click on the indicator or simply grab it and attach it to your chart. On the TradingView, for example, will appear like this:
What time frames work best with TSV?
The time frames that work best with the TSV depend on your trading style and the market you’re trading. If you are a day trader, you may want to use the hourly, 30-minute, or 15-minute time frame. If you are a swing trader, the 4-hourly or daily time frame may be more suitable for you.
A position trader may even require a higher time frame. However, to know the best timeframe for whatever style of trading you use, you have to backtest the various time frames for that style of trading to know the one that works best for the indicator.
How can TSV analysis be automated?
To automate TSV analysis, you have to learn how to code or get someone to code your TSV strategy into a trading algorithm. But first, you have to formulate a reasonable trading strategy with the TSV.
When you have a strategy with clear entry and exit criteria and a risk management plan, it can then be coded into an algorithm for automated TSV analysis.
What advanced strategies incorporate TSV?
The advanced strategies that incorporate the TSV include algorithmic trading and portfolio management. Algorithmic trading can be achieved with the TSV by formulating systematic strategies with the indicator and converting the strategies to trading algorithms.
Another advanced strategy with the indicator is portfolio management where the TSV can be used to select stocks that are poised to rise due to increasing buying pressure and roll out of stocks that are getting increasing selling pressure.
How do market makers influence TSV readings?
Market makers can influence TSV readings by manipulating the direction of the market or making the market very choppy. In the case of the former, the indicator may suggest that the market is rising but it turns out to be a bull trap. For the latter, the TSV may generate plenty of false signals.
Can TSV be modified for better results?
Yes, the TSV can be modified for better results. To achieve that, you have to backtest your strategy with different indicator settings, markets, and timeframes. This way, you can know the most favorable markets to trade, the best settings to use, and the right timeframes to trade on. Also, you can get better results by creating better strategies in combination with other indicators and analysis tools.
How to use TSV for risk management?
To use TSV for risk management, you must have a robust trading strategy with clear risk management plans. You cannot directly use the TSV to manage risk, as it neither tells you where to place your stop-loss order nor the position size to carry.
But with a robust trading strategy that has been backtested, you can know the right risk management parameters that work best for the strategy.
What educational resources are best for learning TSV?
The best educational resources for learning the TSV include this page you’re reading now and trading blogs like therobusttrader.com and quantitativestrategies.com. Another good resource is the source code and explanation of the indicator’s developers on TradingView. We also recommend chapter 6 of this book by Mark Larson: “12 Simple Technical Indicators: That Really Work.”
How does news impact TSV readings?
News can impact TSV readings by influencing price movements. Following any major news release, the market participants react as a herd, either in favor or against the news, depending on how they interpret the news.
This creates a volatile market condition, which impacts the TSV reading. Thus, it may be better not to use the indicator during news releases.
Can TSV be used with algorithmic trading systems?
Yes, the TSV can be used with algorithmic trading systems. All that is required is to formulate a good trading strategy with the indicator and code it into a trading algorithm or get someone to code it for you. Algo trading systems are easy to backtest and evaluate, and they enable you to have automated trading.
What historical data is useful for analyzing TSV?
The historical data that are useful for analyzing the TSV are the price and volume data, as the indicator uses both in its calculation. The historical price data shows whether there is a positive or negative price change, while the volume data shows the strength behind the price change. The indicator combines both information to determine whether there is buying or selling pressure in the market.