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Yacob Hassan

How to Read/use Volumes

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Volume at its most basic is used as an indicator ;) of activity

Beyond that you can get into interpreting it in context for indications of supply and demand patterns ;)

On this forum, the Wycoff threads moderated by dbPhoenix are a good place to start... links to the books and resources found therein

From there, go to the VSA threads... and also links to the books and resources found therein

I know there are several other volume pattern nuggets on TL but not remembering any specifics right now

 

hth

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One of the very best books on understanding volume and why volume is a key indicator is Tom Williams's Undeclared Secrets that Drive the Stock Market. A revised edition is also available as a free download from Tradeguider.com under the title Master the Markets. If you look in the VSA forum, you will see the thread that has the link to this ebook.

 

The Wyckoff Course (available from the Wyckoff/Stock Market Institute) is the basis of Tom Williams's work and has a substantial amount of information on volume. The SMI website also has a lot of good info on volume and is the source for Wyckoff.

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Analysis of volume is best done "on the job" sitting next to someone who knows what to point out to you...Absent that I suggest you look for tools that will allow you to see how volume fluctuates at critical points in a chart. If there is interest I can point out some of these tools later.....

 

Not knowing what time frame you prefer I will simply talk about intraday trading.

 

Intraday Tops and Bottoms

 

You can learn some of this by simply looking at intraday charts. Generally speaking as an intraday market swings up/down, you will see volume ramping up/down. Look at the attached chart and see what I mean.

 

Start with the open....Generally the first few bars are retail orders filling and imbalances resolving from the previous day. On this day, you see what we will characterize as "noise" which means you have a choppy market auctioning up and down (orders both ways). Looking at the price action however you can see that "locals" are trying to mark it down (take it down to where they were short the previous day). In the next chart you see the previous day's close (and you can see how the market closed down) which is usually the target that locals are looking to test.

 

Now refer back to the first chart and you can see how volume ramps down and at the end of each "ramp" you have a spike of "volume". We will characterize this as an "exhaustion spike". Think of the market as though it were a living breathing organism. The up and down "ramps" are like the market breathimg in and out. The spikes mark the end of each "breath"

 

Check out the volume I have marked at the top of each spike...For the market you trade you should know what type of volume is characteristic of an "exhaustion spike". This lets you know that you may expect a change in trend at these points

 

The other important item that I will mention is the close.... Look at the big spike at the end of the day 15:55 EST.....This is when MOC orders start to come into the market. Some of them are programmed orders, others are traders looking to establish longer term positions. This can be important info for your analysis.

 

I will let you take it from here.

 

Good luck

Steve

snapshot-351.png.b31a277db3945a64a6c36a4214bae5c3.png

snapshot-350.png.949eab190a1d913e47800ceff8773e58.png

Edited by steve46

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Analysis of volume is best done "on the job" sitting next to someone who knows what to point out to you...Absent that I suggest you look for tools that will allow you to see how volume fluctuates at critical points in a chart. If there is interest I can point out some of these tools later.....

 

 

Would like to hear more on the tools used to decipher volume. I have noticed on the YM 1 minute a good 2 bar reversal can be consistently seen if:

 

(for tops) bar 1 is an up bar with a tail at the High along with exhaustion volume peak and bar 2 is a down bar with much less volume. This can be seen over and over again. The reverse holds true for bottoms. I usually tend to enter on pullbacks but this theory doesn't seem to work for pulllbacks so I second guess the trades. In an uptrend, once an exhaustion peak is observed, a simple pullback could follow and then take off....

 

Just my observation...

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