Daytrading Futures Volume Analysis Questions

[daedalus 10]

I had a few, ok, well a LOT of questions regarding volume. I just started using it in my trade setups a few days ago and it has revolutionized my entries and exits. However, I understand that I am still missing out on a LOT of information held within the volume histogram and I had some questions that maybe someone could explain to me.

 

I am interpreting price action and volume a certain way but I don't know if its the RIGHT way. ANY HELP WOULD BE APPRECIATED.

 

Charts are from yesterday and today's price action in the NQ on a 377 Tick chart. Using the Tick Delta indicator from the indicator forums. Its is merely the same as the stock TS volume indicator except it splits out the volume into buyer/seller dominated bars (thats the part i'm using effectively now). But i think the part i'm missing is in the amount of volume coming into various moves and the possible divergence patterns that are occurring right under my nose.

 

I'm a really big visual learner so i've tried to describe everything with charts that have key points labeled with numbers so hopefully we can explain the same inflection points on the examples clearly.

 

So lets get started!

 

 

I guess one of my biggest questions is how to accurately measure for divergence in the market. So i've tried to pick out inflections with obvious new swing high/lows in the market keyed up with the corresponding volume on those candles. Examples of this would be on the chart:

 

1-2, higher low backed with higher high in volume, thus, move is backed and higher highs are expected?

 

3-4, higher low with divergence lower low in corresponding volume, thus divergent behavior and new highs not expected. potential reversal?

 

8-9, lower low but with divergent higher high in volume, thus potential reversal?

 

Is there any logic wrong here? Am i looking at the right spots to measure volume?

 

Basically, should i be looking at volume in uptrends measured at the new highs or at the swing lows, and vise versa in downtrends?

 

Price action from today:

 

 

So again, should i be looking at volume when the move is making a higher high (the blue dots on the 4-5 move) or at the green dots on that same move? Now that i think about it really is coming down to one big question of where to measure the volume from. Because thats what I need to know to accurately interpret the volume at any level and right now i'm just kind of guessing off of what i know of price action.

 

 

so in the 3-5(not labeled but the next blue dot after 3) is a lower low in volume on a lower low in the price ok? Or is the real information on the 2-4 upswing that is divergent in volume indicating to stop buying after the 4 point?

 

I'm sorry if this is confusing or not clear. I appreciate all of your responses!!!

[BlowFish 10]

Have you tried using a smoothed tick delta indicator? It essentially changes it to a log scale and smothes it with an ema. You should be able to find one knocking around here somewhere. Let me know if you can't. It really shows up divergence a bit more clearly (though I should say it's not something I use but I am tempted to as it gives a pretty nice clear read).

 

There is a site that has a few videos on using a similar indicator for divergences but I am loath to list it here as they sell a version of the free one!! That really irritates me!

[Guest forsearch]

Here's a video on how a vendor uses "delta divergence" that I found on Google.

 

You can find the "free" version of this indicator elsewhere on TL.

 

-fs

[daedalus 10]

Thanks for the posts guys. I am aware of various vendors that do the delta divergence stuff, i understand that for the most part. The reason i'm showing the delta divergence indicator is simply that it is the same as the volume histogram, so the same kind of basic volume analysis should be possible.

 

[daedalus 10]

Heres TTM's full 90 webinar on the delta indicator which as you mentioned is available for download in the indicator section.

 

http://www.tradethemarkets.com/public/1721.cfm

[daedalus 10]

I should also mention that the youtube video mentioned refrences a different indicator than whats on my charts. The Tick Delta indicator is just splitting each bar into buyer/seller dominated on each volume bar. Delta Divergence (the youtube and TTM webinar i posted) is an entirely different indicator and idea than whats on my charts.

[Guest forsearch]

I should also mention that the youtube video mentioned refrences a different indicator than whats on my charts. The Tick Delta indicator is just splitting each bar into buyer/seller dominated on each volume bar. Delta Divergence (the youtube and TTM webinar i posted) is an entirely different indicator and idea than whats on my charts.

 

That's nice to know .:missy:

 

I'm actually surprised that TTM hasn't snapped up the Tick Delta indicator and marketed it yet as their own indicator.

 

Investor R/T has a similar indicator called Volume Breakdown - more info, and a couple of videos here:

 

http://www.linnsoft.com/tour/techind/vb.htm

 

[BlowFish 10]

I wasn't thinking of the hucksters at TTM I was thinking of the huckster here. Actually some of the stuff that Malcolm is doing seems pretty sensible. But charging for versions of public domain indicators arrrrrrrggggggghhhhhhh.

 

http://www.futures-day-trader.com/public/department41.cfm

 

http://www.futures-day-trader.com/public/department2.cfm

 

Lots of videos showing how to use the tool to detect divergence.

 

Try smoothing the delta as I mentioned I think you will like the result. It makes divergence much clearer (to me at least).

[daedalus 10]

Yea i've watched malcom's stuff before, thanks for that.

 

I think the Tick Delta has confused everyone on my actual question. Lets pretend that the tick delta indicator in my examples were just a normal volume histogram (thats what i'm using it as in these examples) how should I be interpreting the various divergence patterns?

 

Where should I be measuring volume from? Any ideas guys? Because in my examples i'm not really using it in a normal VSA move because i've been looking more on a macro scale of swing to swing rather than bar to bar, which is why i'm curious if i'm looking at the divergence patterns correctly or if i'm completly off base.

 

Thanks again for everyone's responses!

[Guest forsearch]

I wasn't thinking of the hucksters at TTM I was thinking of the huckster here. Actually some of the stuff that Malcolm is doing seems pretty sensible. But charging for versions of public domain indicators arrrrrrrggggggghhhhhhh.

 

Yeah, that's what TTM did first. This guy is just copying what TTM proved was a successful business model. He's even using the same "membergate" website setup as TTM did.

 

But don't believe me. Listen to the webinar I found on Google where John Carter acknowledges in his own words how much money TTM really makes.

 

http://tinyurl.com/5jwpod

 

-fs

[daedalus 10]

Yeah, that's what TTM did first. This guy is just copying what TTM proved was a successful business model. He's even using the same "membergate" website setup as TTM did.

 

But don't believe me. Listen to the webinar I found on Google where John Carter acknowledges in his own words how much money TTM really makes.

 

http://tinyurl.com/5jwpod

 

-fs

 

Holy god... i knew they made money but 989k in sales of FREE indicators and 1.2million in sales for subscriptions... that is ridiculous!

 

Now back to volume analysis!

[BlowFish 10]

TTM - Wow.

 

I think you are doing it 'correctly' (though of course whatever works for you). Peak to peak and trough to trough on the price chart is the 'normal' way of looking at divergences.

[daedalus 10]

But sometimes the peak to peak will show a divergence whereas the trough to trough won't and vise versa. Is there a "normal" way that is preferred by most?

[Guest forsearch]

Divergence is like the Supreme Court definition of porn: you know it when you see it.

 

That being said, here's an interesting article by Martin Pring on Reverse Divergence and Momentum.

 

And another by Barbara Starr on Hidden Divergence.

 

These should help provide additional context to determining and trading divergences when you see them.

Edited August 17, 2008 by forsearch

[darthtrader2.0 10]

But sometimes the peak to peak will show a divergence whereas the trough to trough won't and vise versa. Is there a "normal" way that is preferred by most?

 

Ive honestly never found any utility in the delta volume indicators. The only thing that seemed to be pretty usefull IMO is Market Delta with the plot set to delta bars. They are basically like constant volume bars but a new bar is only plotted when the bid/ask has transacted to one side by a number you set. One good way to use that is if your in a winning trade just hold until the move has reached its top but you have the opposite as far as delta goes. Its a good bet that those who were lifting or sinking the bid or offer of the move have played out their hand and some profit taking has come in. Its too inexact IMO to use for countertrend reversal trades though.