Volume: ARCHIVE

[jcavalieri 10]

i do actually see a technical rally there. my vertical line for # 10 should have been over 12:00 directly after the culmination of the tech rally and the beginning of the secondary reaction. following the successful light volume test price breaks the high of tech rally and volume comes in on the rise

Edited February 4, 2009 by jcavalieri

[DbPhoenix 42]

I'm a little concerned that those who are trying to learn this not get too wrapped up in jargon. Jargon is a kind of shorthand, intended to facilitate communication. Instead, it often hinders communication, even among those who, on the surface, "understand" the jargon's referent. Those who are part of a profession of some sort -- psychology, medicine, law, education, etc -- tend to be more comfortable with it than those who have little contact with it (or think they don't; even cooks have jargon). But even within those professions, the jargon can often be a stumbling block. Just ask ten psychiatrists/psychologists to define "schizophrenic" without resorting to a textbook or manual of any sort.

 

"Technical Rally" is a handy term, meaning as it does that the rally more likely consists of "bad buying" or "amateur buying" or "ignorant buying" than "good buying" or "professional buying" or "informed buying". What does all that mean? That the buying is, literally, purely technical, whether short-covering, misinterpretation of the inflow of buying pressure, or the ever-present desire to "catch the bottom". In the case of short-covering, it isn't "real" buying, i.e., the buyer doesn't wind up holding anything. As for the other buying, it is of the kind that will reverse itself at the first sign of trouble. It is not committed. But oftentimes, the only way to tell whether the rally is technical or not is to wait and see whether or not the shares or contracts are quickly thrown back into the market, and, if so, when, which is what the "secondary reaction" is all about (though there's nothing wrong with calling it, simply, a test, since that's what it is; if jargon isn't necessary, why bother?). If and when those shares/contracts are thrown back into the market, one can then have more confidence that whatever buying occurs after the test is "good" buying, i.e., people that plan to hold onto what they've bought, and maybe even buy more.

 

There is also the issue of "climax", which is often explained badly, perhaps even by me, resulting in the beginner's continuing search for it, signalling the opportunity to buy. Genuine climaxes, however, are relatively rare, and they are often seen as such only in hindsight, which doesn't do the real-time trader any good (though pegging them impresses the hell out of the gallery when the "pro" is presenting his hindsight analysis). "Climactic volume", on the other hand, comes along more often, and though the difference can seem niggling, these episodes of climactic volume can serve as flashing yellow lights, warning of important events to come.

 

Here, you have at least two of these, the first two red lines. One can call these "preliminary support", which hardly qualfies as jargon if one knows what the word "support" means. Otherwise, one can simply point out that the balance between buying pressure and selling pressure has shifted -- or will quickly shift, since the volume can come in on the way down -- to the buyside (which is actually the explanation that I prefer; avoids doubt as to the poster's intent). One can't know at the time whether one is actually looking at a climax or not until at least the supply line is broken or the test has taken place. Here, the supply line is not broken and you end up with lower lows. Hence, no climax. After the third spike in trading activity, price still doesn't break the supply line, but there is no lower low, and volume on the test is much less than it had been within the spike. When volume spikes again, it comes in on the upside, and the supply line is finally broken.

 

Is this a climax? Yes and no. It is "a" climax, but it is not "the" climax. How does one know? Support and resistance, which is what nearly everyone leaves out of the equation. Unless you're looking at relatively serious S/R, it is likely that what you think is a climax is more nearly climactic action that a genuine climax. Since you can never be absolutely sure in real time, this doesn't mean that you can't go ahead and play what you think is a climax as a climax. You may after all be right. It happens. Just don't be surprised if your trade has no legs and price has further downside to go.

 

The real climax, of course, takes place at important S, which is at 28.75+/-. All of this occurs at 1530 (one can see this S by including the 23rd thru 27th). One can expect it to occur here (which is one of the chief advantages of this approach), watch it happen, then take advantage of it. Granted, 1530 may be a little late in the day, but it provides an awfully nice setup for the following Monday IF one is prepared to act as soon as the market opens (or one can take a position a little earlier, at 0800, if one is comfortable trading premkt).

 

 

 

 

A final note: static charts and hindsight analysis have their place. They serve primarily to illustrate principles. And I can understand and appreciate the effort that people put in to creating these charts and presenting them for comment. However, there isn't a single principle that hasn't been illustrated to death by the hundreds of charts already posted here and in my blog. If one truly wants to understand this, at least to the point of actually being able to use that understanding in real time to make money, he must study it in real time. And that means the chat room, unless the beginner wants to pay somebody to sit with him alone during the trading sessions. But not only can that be expensive, one is then limited to only one point-of-view. Granted, some people think the chat room is a waste of time. And there can be a lot of literal "chat" when the trading gets boring. But that's what the Ignore function is for. If one declines instead to tap into the talent and skill and experience that is represented in this chat room, then he can expect to spend a great deal more time grappling with the problem of how to ride these waves and eddies and currents during the trading day. On the other hand, those who cannot trade during the day are urged to divert their attention to EOD trading, where the opportunities may yield even more profit, and with a hell of a lot less stress. These charts can be posted prior to the point where action is required (no reason to post them afterward), making them "precognitive", which is even better than real time.

Edited February 14, 2015 by DbPhoenix

[jcavalieri 10]

in Wyckoff's composite average analysis he mentions several times the occurrence of minor climaxes. does this have to do with both location and amount of trading activity associated with the climax? i also wanted to thank you for all your hard work DB and willingness to help others

Edited February 8, 2009 by jcavalieri

[DbPhoenix 42]

What eludes many practitioners is that the climax is not an event but a process. Hence the focus elsewhere on the climax "bar" (or the "hammer" or "shooting star") and the detection of "preliminary support" and so forth. This leads to an effort to label all these bars, which lengthens the glossary (unnecessarily) and gives the practitioner something else to memorize.

 

But none of that is important or even relevant if one is attuned to the flow of price and the coincident flow of trading activity (volume). If one focuses more on the waves and less on the bars, it's not difficult to determine where buyers are coming in to support price, even if price is nowhere near the "bottom".

 

In the major averages, for example, one can easily spot the rush of "smart" buyers to support the price in mid-September. Looking back on that, one can conclude that he was wrong in labeling that as a climax, that the "smart" money was wrong to step in at that level, that everything that one had thought was happening was not in fact happening and so on. But none of that would be quite true, and certainly not fair. No, it was not a climax, technically, but it sure as hell was climactic. And it's all part of the bottoming process, just as the inrushes of support on the rest of the way down have been part of the bottoming process.

 

Therefore, all instances of trading activity increasing along with a push back against the wave -- or a "turning of the tide" -- indicate buyers supporting price at whatever level (if trading activity weren't increasing, this would indicate a withdrawal of selling interest, which is not quite the same battle). They may be "right" or they may be early, but none of that is pertinent to the fact that they are supporting price at that level, and at the moment that they are doing so, that's all that matters.

Edited February 14, 2015 by DbPhoenix

[BrunoHammerstorm 10]

I'm a little concerned that those who are trying to learn this not get too wrapped up in jargon. Jargon is a kind of shorthand, intended to facilitate communication. Instead, it often hinders communication, even among those who, on the surface, "understand" the jargon's referent. Those who are part of a profession of some sort -- psychology, medicine, law, education, etc -- tend to be more comfortable with it than those who have little contact with it (or think they don't; even cooks have jargon). But even within those professions, the jargon can often be a stumbling block. Just ask ten psychiatrists/psychologists to define "schizophrenic" without resorting to a textbook or manual of any sort.

 

[/left]

[/center]

 

ROAR lol db... i think you and i know why this is priceless!!!! PRICELESS!!! LMFAO...

[BrunoHammerstorm 10]

yes read all section 7m and all the other stickies as well. starting from the beginning would probably help.

 

well i guess thats the last time i'll encourage a learner... especially if he'll assume i'm doing it because i don't understand it myself....

 

.....and the same cycle rolls on and on and on...........

 

lol

[MRW 10]

DB, I may have read and thought about this post of yours more than any other.

 

It certainly helped today. I've been watching the 1 minute charts on the SPY, and over and over we've seen climactic action, yet prices fall to new lows after brief rally, or perhaps supporting attempts.

 

It's interesting to think of waves and climatic action, rather than individaual bars - and, as you say, easier.

 

Thanks for a great post!

[innovation1520887469 10]

Firstly I apologise for the length of this post. I thought about splitting it up into separate posts but as my queries are all related and there might be a chance that they are all rooted in the same misconception or misunderstanding I thought they would be better put in one place.

 

This is not solely aimed at DB, anyone else (Atto, Firewalker, Head2K et al) who understands the dynamics involved in the creation of recognisable price volume footprints that appear in market data and thus our view of it (charts), please, attempt to enlighten me

 

I am trying to get to a point where I can make reasoned statements about price action, backed up with the story of relative struggle on behalf of buyers and sellers that volume tells. I seem to go round a loop of ignorance, enlightenment, confusion and back to ignorance. My problem is that I seem to be able to see alternative, opposite and equally viable scenarios to those that are widely accepted which results in a clouded view of the market.

 

I will number my Queries to make reference easier.

 

1) Conventional wisdom (Wyckoff the source?) about volume says that in an uptrend increasing volume on rallies and decreasing volume on reactions is a good indication of continuation of the trend.

 

From 14M:

 

"If a stock advances 5 points on transactions of approximately 60,000 shares a day and on a two point reaction the volume drops off to about 15,000 shares, the indication is that comparatively little stock is for sale, and that it is merely having a resting spell. Those who want to get out can do so. Indication of a further advance would be a gradual dropping off of this volume during the reaction until hardly any trades in that stock appear on the tape (or volume becomes quite small on the chart). But, when the volume again increases and the price advances, especially if it goes through the former high, a further material upward move may be anticipated."

 

Why? I mean why is increasing volume on rallies a +ve thing?

It could be argued that both buyers and sellers are committed or into the market and that the fact price rises means that buyers are stronger, the large number of transactions on the way up mean that there would be more resistance to price falling back through.

 

It could also be argued that increasing volume on the way up means that the buyers are encountering more and more opposition, thus wearing them out or filling all the demand meaning the rise will stop soon as the buyers will be exhausted.

 

If a move up occurred on low volume then wouldn't that be a good thing? Buyers are not having to exert much effort as there are no sellers to take the other side of their trades, when sellers do want to step in then there is more buying pressure left to bring to bear. Or is it the case that buying pressure could drop off as price rises purely because price has risen and no longer represents value to the buyers?

 

Why is decreasing volume on the reaction a +ve thing?

 

It could be said that after a reasonable rise some of the buyers will turn into sellers in order to realise their profits thus creating 'poor quality' supply and causing the reaction, the low number of transactions could point to the fact that there is very little interest on behalf of sellers (those wanting to open short positions/'good quality' supply) wanting to see lower prices at this time.

 

It could also be said on the flip side that the reaction should not be able to proceed back through the range of price where there has been so much 'effort'/volume expended to rise on very little volume as buyers would not want to see their gains ebb away and seeing as the most volume was most recently, i.e. at the top there should be most resistance there. Also if the sellers had been putting their back into it on the way up trying to resist the currently unstoppable force of the buyers then why have no interest in lower prices on the reaction? Surely they would want to capitalise on any pause or weakness displayed by the buyers or in buying pressure.

 

Is it all immaterial? The reaction on low volume can only be seen as a reaction when price starts to go up again otherwise it could indicate the end of the up move as buyers are gone/exhausted and sellers are not yet interested, yet price continues to drop.

 

 

2) When talking of an instrument being on the spring board on the bull side W writes:

 

"When a stock is “on the springboard”: On the bull side a stock (or a group, or the market as a whole) is in this position following a period of preparation. This usually occurs at the bottom of a decline -- though it also occurs after the price has been in a trading range following consolidation of a previous advance in preparation for a new mark-up. The greater the decline the more likely large operators will accumulate the stock and make it the basis for a bull campaign."

 

And on the Bear side:

 

"A stock (or group, or the market as a whole) is on the springboard on the bear side, of course, following a period of preparation, in this case distribution. This usually occurs at the top of an advance, but it also occurs after the price has been in a trading range, following a decline, in which further distribution is taking place in preparation for a new downward plunge."

 

I can't see the difference between them!

 

A trading range following consolidation of a previous advance in preparation for a new mark-up is indistinguishable from the 1st bearish situation at the top of an advance following a period of distribution unless you can tell the difference between accumulation and distribution before it becomes obvious (i.e. after the fact).

 

Is it possible to differentiate between accumulation/absorption and distribution while there is opportunity to profit from the knowledge? In 7M Wyckoff discusses a period of absorption as being so because:

 

"*The probability that this lateral movement, or trading range, between 156-151 is an area of absorption rather than one of distribution may be determined: (1)from the fact that volume remains low on the reaction to January 29th and tapers off promptly on the reaction to February 2nd; (2)from the tendency of the price movement to narrow into a comparatively small range instead of reacting as much as halfway back to the January 19th low, which implies that stocks are not being pressed on the market; and (3)from the fact that after the recession to February 2nd, volume tends to build up consistently at the same time that there is a lifting of the supporting points from February 5th to 7th –- behaviour typical of the completion of a period of accumulation or absorption prior to a mark-up."

 

So again we get back to why? Why is low volume on the dips indicative of absorption and why is higher volume at the top not an indication of resistance and therefore distribution? I have seen price stop just underneath R, move in a tight range only to breakdown as supply exceeded demand as well as pausing before shooting through R.

 

 

3) Also from 14M:

 

"A small volume, that is, little activity in a stock, indicates that it is being neglected by traders and the public. When this small volume occurs at the bottom of a considerable decline, or at the bottom of a reaction or small dip, it usually indicates a lack of pressure; a drying up of the selling.

 

A small volume may have a different meaning at the top of a rise, or a rally, or a small recovery. This frequently is a bearish sign. It indicates that demand has been filled, or has dried up. The stock will probably go lower because demand is lessening and supply will likely overcome it.

 

There are exceptions to the above indications however. Thus a small volume and narrowing into small price movement after a rise may mean that the stock is resting and digesting its previous gains, instead of reacting, prior to a further advance. Therefore, in judging volume indications, we must always be careful to take into account the action preceding a particular volume indication as well as all of the other technical influences prevailing at the time the volume indication is given."

 

Again, how can you tell the difference between low volume indicating a change in direction and just a pause in the current move?

 

Is "a small volume and narrowing into small price movement after a rise may mean that the stock is resting and digesting its previous gains" the same as absorption on an up move or distribution on a downward move?

 

 

4) Wyckoff mentions a method of determining oversold or overbought conditions:

 

"No precise definition can be given, whereby we may determine the exact points at which the market or a stock is definitely oversold or overbought. This must be determined as explained in previous references to these phenomena."

 

Where can these references be found?

 

Again apologies for the lengthy post, I hope that I will not be the only beneficiary of any response.

Edited February 15, 2009 by innovation
formating

[Head2k 10]

Thank you for listing me among those who "who understands the dynamics..." but my understanding is far away from the other mentioned people. I just wanted to tell you that I had almost the same problem as you, and to large extent I still have it. And I believe the solution to your troubles lies in understanding Support and Resistance (and maybe Trend as well). I suggest you to study Db's interpretation of AMT.

 

To elaborate, your problem is that you think of price and volume action only in little context. Price and volume action has no meaning if you don't consider where it is happening, what happened there before and what happened (even elsewhere) in recent past. It is easy to say it like this but it is hard to understand what it means, or how to interpret the context and price/volume action within it.

 

I suggest that you stop thinking about price/volume action and start thinking about behavior of traders (bulls and bears). Think of what they are trying to accomplish, what effort they put in to accomplish it and how they succeed. Compare their behavior now to their behavior in past. Did they accomplish what they wanted? If they didn't succeed it on the first attempt, did they give up? Or are they trying again? And if they are, is their conviction stronger? Is it weaker? And again, how they succeeded?

Understanding Support and Resistance tells you what there is to be accomplished and helps to make the shift from "watching price dance" to watching the push and pull, or effort and result. I know that what I wrote is quite abstract, but give it a thought.

 

Now to your questions:

 

1) Why is increasing volume on rallies a positive thing?

It is positive if bulls showed their conviction, bought all there was to sell and kept price advancing. I underlined the important thing. Both buyers and sellers are becoming more active if volume is increasing, but the result is important. And again, this is not the whole equation. One also needs to ask why there was more to sell and what bulls accomplished with this rally. What they got through, if anything? Where they stopped? How they stopped, or were stopped? The result in the "effort and result" relation is not only that "price advanced", but much more.

 

2) Bullish vs. Bearish Springboards

I'd say that a springboard is not the consolidation (acc. or dist.) as a whole, but that it is one specific moment near its end. It is a point where one side finally gives up (IMO it doesn't need to be the same moment where the other side aggressively takes over). To tell the accumulation from distribution and to notice when price is on a springboard one must know where this consolidation is taking place (in relation to S/R), and watch what is the effort vs. result at or near its edges. What are bulls and bears trying to accomplish here? How hard and how many times they try? How they succeed? What is the response of the other side?

 

3) How can you tell the difference between low volume indicating a change in direction and just a pause in the current move?

Again context. And Effort vs. Result. If price is at R where we witnessed a climactic action before, a low volume reversal indicates a lack of buying pressure. But after the same climactic action, if there is clearly no interest in lower prices and then price approaches the R on low volume and there is no or only little response from bears, it might mean they withdrew.

 

4) Overbought / Oversold

I am not quite sure, but try Trend thread. I believe W used trend channels to tell these positions. But there is no magic. Simply if price moves too far and too fast from its value, then it is in oversold or overbought condition. Assuming that is doesn't take the value with it. The value can be static (horizontal zone) or moving (channel).

 

I hope my observations might help you a bit, although I am only a beginner like you. If somebody more experienced wants to elaborate I will be only happy.

Edited March 10, 2013 by DbPhoenix
Add AMT link

[jcavalieri 10]

with increasing volume on rallies and decreasing volume on reactions would that not indicate that buying waves are attracting more of a following than selling waves as bears hold on for higher prices indicating the path of least resistance is upwards? or is that what you were saying head and i just misunderstood

[Head2k 10]

with increasing volume on rallies and decreasing volume on reactions would that not indicate that buying waves are attracting more of a following than selling waves as bears hold on for higher prices indicating the path of least resistance is upwards? or is that what you were saying head and i just misunderstood

That's not what I was saying but it's true. Though I wouldn't use the term "path of the least resistance" but rather path of more interest. Traders are more interested in higher prices. Then it depends if price actually makes new highs, that is whether we are getting those higher prices. That tells you whose interest is stronger.

[innovation1520887469 10]

Thanks for you reply Head, I appreciate the effort and I will indeed give your advice some thought. Unfortunately at the moment things are not much clearer to me as a result. I think I do understand S&R and trend and indeed do try to look at the market for what it is, a mass of buyers and sellers (bulls & bears, buying pressure & selling pressure) not at individual 'bars' or arbitrary samples of market action. I have read and digested DB's recent post on AMT.

 

As far as context is concerned I do attempt to look at unfolding action in context but find it is hard to know what is enough context and what is superfluous. In fact this leads me back to my original post where I end up formulating several mutually exclusive scenarios each of which (in my mind) are equally likely - take for example price testing resistance for the 3rd or 4th time (within a relatively small time frame): One could view this as bullish as price was obviously not successfully rejected on the last attempts and the bulls/buyers are liking their chances of moving past R once all the supply has been absorbed. One could also view it as bearish as each attempt to break through R has failed and the bears are taking the opportunity to distribute at the best price, once they have sold their line they would apply more selling pressure to see lower prices.

 

... Did they accomplish what they wanted? If they didn't succeed it on the first attempt, did they give up? Or are they trying again? And if they are, is their conviction stronger? Is it weaker? And again, how they succeeded?

Understanding Support and Resistance tells you what there is to be accomplished and helps to make the shift from "watching price dance" to watching the push and pull, or effort and result.

 

How can you tell if their conviction is stronger? more result in less time?

"How they succeeded" - surely by then it is too late to hope to profit from the success?

 

1) Why is increasing volume on rallies a positive thing?

... One also needs to ask why there was more to sell and what bulls accomplished with this rally. What they got through, if anything? Where they stopped? How they stopped, or were stopped? The result in the "effort and result" relation is not only that "price advanced", but much more.

 

I must admit that I had just been thinking that "price advanced" was the result, how though can we hope to determine how they stopped or were stopped & what difference does it make to the bigger picture?

 

2) Bullish vs. Bearish Springboards

... To tell the accumulation from distribution and to notice when price is on a springboard one must know where this consolidation is taking place (in relation to S/R), and watch what is the effort vs. result at or near its edges. What are bulls and bears trying to accomplish here? How hard and how many times they try? How they succeed? What is the response of the other side?

 

Could you give an example of your thought process? I end up going round in circles

 

I must point out that I was playing devils advocate in my original post, trying to come up with a logical counter for the 'accepted wisdom', perhaps I might benefit more if someone could explain why this could not be the case.

 

Once again thanks. I am determined to get to a point where I have an intuitive feel for the push and pull of buying and selling but I am beginning to see it might take some time

[jcavalieri 10]

i think we need to solidify the definition of buying and selling interest and buying and selling pressure. interest is defined by amount of activity therefore if volume is high, interest is high for both buyers and sellers. what determines whether prices rises or falls is the amount of buying or selling pressure. correct? also where is DB's post on AMT located?

[jcavalieri 10]

" I must admit that I had just been thinking that "price advanced" was the result, how though can we hope to determine how they stopped or were stopped & what difference does it make to the bigger picture? "

 

if your observing a buying wave that has just cleared a prior hi and making its way up to a higher hi and you notice that volume is contracting and price is losing momentum you can infer that demand is lessening because being that price is at a relatively high price supply should be readily available. so the low activity and loss of upward momentum suggests less demand to fill up all the supply and therefore supply is overcoming demand and a reversal is likely.

on the other hand, if your observing a buying wave in the same situation, but this time volume is expanding and result in price is getting less. and on continued expansion in activity price reverses sharply to the downside you can infer that supply was beginning to overcome demand and did eventually completely. so the rise was attracting increasing interest from buyers and sellers and at a high enough price demand was no longer able to absorb the increasing supply.

[Head2k 10]

... take for example price testing resistance for the 3rd or 4th time (within a relatively small time frame): One could view this as bullish as price was obviously not successfully rejected on the last attempts and the bulls/buyers are liking their chances of moving past R once all the supply has been absorbed. One could also view it as bearish as each attempt to break through R has failed and the bears are taking the opportunity to distribute at the best price, once they have sold their line they would apply more selling pressure to see lower prices.

 

Ok, so here is an example. Lets have a look at consolidation at resistance. 1200 +- a few points is an important S/R zone and price approaches it from below.

 

Here is a chart showing why 1200 is important.

 

 

Here is a 5 sec chart of the consolidation (approx. the same moment in time as the previous chart):

 

 

The thick red line is the S/R level. But in this case it is old and tested many times, and the S/R is more a zone +- 5 points around this level. There is also a trend line of an intraday up-trend which took us to this R. Last swing high before the consolidation is 1199.25 and it is not visible on this chart.

 

As price approaches there is a burst of volume (0) as it gets through 1199 (green line). Apparently there was some resistance, but bulls didn't care - they just shot through it and price continued easily after that, so bears withdrew.

 

Now notice the price / volume spike (1). Bulls' effort was quite big and so was the price advance (result). But what happened then (2)? Where have the buyers gone? Are they just having a rest or are they done? And what about bears? Are they ready to sell as soon as they spot this weakness or are they holding back because they think it is too cheap yet?

 

What happens next is obvious. Bears push and bulls are not able to oppose. Notice how fast price got back and what effort did it take (= also what effort bulls put in to oppose the move). Also notice volume between (0) and (3). It is definitely the highest concentration of volume on the chart. Could it be a climax? Or was it just a healthy push through R and a pullback?

 

At (3) it is aparent that price is not ready to decline substantially yet. Another test of R is likely. Or wait a minute - maybe we just witnessed a retracement after a breakout? There is not enough information to judge that IMHO.

 

Price then advances without much effort spent, it slows down and then wham (4) - supply. But notice that is didn't drop much after that burst either. Then it is supported higher than before with almost no effort. It looks like both bulls and bears need to think for a while. At (5) bulls try again but the rally is checked in the very beginning, and bulls didn't continue pushing. And then again, support is found at the same level as before and again it costs no effort to support the price there. This is one big indecision. Now bulls see that bears aren't willing to pull lower so they try again to push higher. They manage to go higher by 2 ticks (but not higher than the "climax") but then the same story again (6). Notice how fast price returns into that 1 point range. And notice how bulls try 2 more times immediatelly after that (soon after (6)) and at each of these attempts they give up sooner and sooner.

 

So is price ready to fall yet? May be. But notice we are still above 1200 and above trend line. This whole action might be just resting, or forming another stairstep in uptrend. By the time price gets to trend line it is at 99.50, one tick above the last swing high. Price breaks the trend line slightly but it finds to interest below the last swing high (7). Then supporting points are lifted on almost no effort. Rally attempts are checked at 1201, bottom af the last one point range. 1201 appears to be a midpoint of the consolidation and you can draw the yellow line if you want. Price then narrows into 2 tick range (before (8)). At (8) and (9) bears try lower, but there is no force behind it, price finds higher support and easily returns. At (8) and (9) I would say that price is on a springboard (for up side). So now it's bulls' turn. And they come. Notice volume between (9) and (10). Somewhat high but nothing extraordinary. But what is the result? Can you see how fast price rises? This is exactly the case when one can say that supply was withdrawn.

 

At (10) price reaches the high of the "climax" and stops. Notice the effort it took to stop it. Bulls don't seem to be convinced much. But maybe it is just a pause. What about bears? Between (10) and {11) activity diminishes and price moves nowhere. What does it mean? Is this just a pause before the final and ultimate breakout and a 50 point gain, or is it a total failure of bulls to continue pushing? You can't tell IMHO (maybe time factor can help a bit. If bulls stop and bears don't come to take over immediately it is a sign of strenght. But if bulls are still not coming even after a prolonged period of time, then something is wrong). Definitely it is indecision. We are sitting just below R and traders don't know what to do. No push, no pull. No effort to break, no effort to reject. Just before (11) price dips one tick lower and quickly returns. But bulls don't try higher. Instead price bounces from the top of that 2 tick congestion and goes lower again. It looks like buyers are really done and sellers start to gain confidence. (Time for shorts, after all?). Price then finds support in the midpoint of the consolidation and tries higher again. And notice what happens when it tries to poke (12) into that 2 tick congestion at the last high. That is a sharp rejection, isn't it? The bulls who bought within those 2 ticks were very happy they could get out near their entry. And at this moment also notice the turquoise and violet line. These lines mark a border between value of the congestion (area where lies most activity) and testing zones (areas where price is rejected from). So if you were a bear, where would you like to enter to make an entry with the least risk? The upper testing zone would be nice. That might give another reason why the rejection at (12) was so fast.

 

After (12) price hoovers above midpoint, so it remains relatively strong. Clearly sellers are not as confident as one might wish if he took the short after (11). Price narrows into 2 tick range again. But notice that this situation is different than between (7) and (8) in terms of what happened before. After a failure to drive price up (13) price breaks below midpoint (this midpoint marks is in fact a micro S/R caused by all these tight congestions). Price is quickly rejected at (14) but notice what effort it costs. But the effort doesn't continue and there is another failure to escape higher (15). Do you notice how the forces are shifting between (7) and (15)?

 

This was an attempt to use context from recent past when interpreting what's happening. But that is not enough, so let's zoom out to 1 minute chart:

 

 

Here we see better where we are. And we see that although price broke trend line, it is still above opening high and the last swing high. The trend still keeps its stairstep nature. We can also see that volume doesn't seem so climactic any more, though it is definitely a spike. What does it tell us?

If 1200 was so important zone, one could expect more of a fight. Instead of that, yes, bulls try, but it doesn't take a real climax to stop them. And since it doesn't take so much to stop bulls, bears could have some extra power left. But they don't use it either. Price is not rejected quickly. No, it is just stopped and left hoovering above that grey line. This marks indecision and it is a warning. Indecision means a chop.

 

Now lets look at 5 min chart (RTH only) and see what happened yesterday around this level:

 

 

Can you see how quickly price was rejected above 1199? And what was the activity there? And what happened today? Price got above that level with less effort and it was not rejected. It is unable to go higher though.

 

Now what's the result? The result is IMHO no trade.

 

And finally lets see what the happy end looks like:

 

And a final note: This was all a hindsight analysis from me. I wish I could reproduce it in real time. But that depends on several things.

1) How well one does his homework: What is he prepared for?

2) Experience: What is there to prepare for and how to prepare for it?

3) Calmness: Even if one is prepared, does he remember it and is he confident and calm, or does he change his plans impulsively?

Etc. (Just some my problems I am aware of.)

 

Hope it helps a bit and good luck.

Edited February 18, 2009 by Soultrader

[innovation1520887469 10]

Thanks Head for the example and your detailed walkthrough, I have found it very beneficial and on the whole agree with your interpretation although I would find it difficult to approach from scratch.

 

(0) does indeed look like a push through R with a pause once it hit the yellow line with volume dropping off there is no selling interest, as you say bears withdrew.

(1) & (2) the bulls pause and the bears step in, then between (2) & (3) there is a struggle where the bears are victorious . At (3) the bears have stepped back, you say:

 

"At (3) it is aparent that price is not ready to decline substantially yet. Another test of R is likely. Or wait a minute - maybe we just witnessed a retracement after a breakout? There is not enough information to judge that IMHO."

 

Is this not the same thing? Also does the amount of effort expended getting here from the recent high mean that a 'normal retracement' is unlikely?

 

(4) I agree someone wants to stop price advancing

 

(5) This one I would not be able to interpret, it could be bears trying to go down and bulls stopping them or as you say visa versa. I suppose this is one of those instance where you would need to view it in RT in order to get a feel for who stepped in and when (if you are capable of such things, I am not!). The fact that price is turned away from the turquoise line with no effort just after this : does it mean that bulls are not quite sure of themselves yet or is it unimportant?

 

(6) Bulls are smacked relatively hard here after their attempt to go up, this would have made me think that we would see lower prices but then price recovers to almost the same level with little opposition. So again I would have a hard time understanding what was likely to come. You say that bulls tried twice more to see higher prices but I see bears trying to go down at the first volume spike an bulls successfully holding them back for now. Followed by withdrawal on behalf of the bulls until 1200 where they think their chances of success might be higher.

 

(7) I would not have noticed this lack of participation until at least much later if at all, context context!

 

(8) & (9) I might have seen as support being shown at higher levels and the second attempt to go lower that failed would likely see an attempt in the opposite direction. In fact I see this occur quite a lot in real time - several attempts to move in one dir that fail which ultimately result in a substantial move in the opposite dir. It is more of a feeling that the prodding isn't going anywhere than anything that can be drawn and I know I shouldn't trust any 'feelings' just yet. So I ignore it only to say oh look at that

 

"So now it's bulls' turn. And they come. Notice volume between (9) and (10). Somewhat high but nothing extraordinary. But what is the result? Can you see how fast price rises? This is exactly the case when one can say that supply was withdrawn."

 

But there is trading activity (more so than the fall between (6) & (7)) so wouldn't that mean that there was supply just more demand?

 

"At (10) price reaches the high of the "climax" and stops. Notice the effort it took to stop it. Bulls don't seem to be convinced much. But maybe it is just a pause. What about bears? Between (10) and {11) activity diminishes and price moves nowhere. What does it mean? Is this just a pause before the final and ultimate breakout and a 50 point gain, or is it a total failure of bulls to continue pushing? You can't tell IMHO (maybe time factor can help a bit. If bulls stop and bears don't come to take over immediately it is a sign of strenght. But if bulls are still not coming even after a prolonged period of time, then something is wrong). Definitely it is indecision. We are sitting just below R and traders don't know what to do. No push, no pull. No effort to break, no effort to reject."

 

I am glad you say that you can't tell, these types of situations have made me think that I have no chance of reading the market as they leave me undecided too, I suppose you could reasonably expect a break either way and play it that way as the range is small.

 

(12) would have had me reaching for the trigger as you say a sharp rejection

 

"And at this moment also notice the turquoise and violet line. These lines mark a border between value of the congestion (area where lies most activity) and testing zones (areas where price is rejected from). So if you were a bear, where would you like to enter to make an entry with the least risk? The upper testing zone would be nice. That might give another reason why the rejection at (12) was so fast. "

 

Excellent point, I hardly ever think about ideal entries for each side...

 

Between (12) & (13) would have made me question any short I was in based on that rejection as there and been no follow through to the down side and activity has all but dried up.

 

"Price is quickly rejected at (14) but notice what effort it costs. But the effort doesn't continue and there is another failure to escape higher (15). Do you notice how the forces are shifting between (7) and (15)? "

 

Honestly, no! I can see that 8,9,10 are all bullish and that 12,13,15 are bearish but 14 is showing a higher level of support albeit costing more effort to maintain but maintained it is. I suppose any subsequent move past the level where (14) occurred on lower volume would indicate a withdrawal of bulls and that lower prices were likely?

 

"And a final note: This was all a hindsight analysis from me. I wish I could reproduce it in real time. But that depends on several things.

1) How well one does his homework: What is he prepared for?

2) Experience: What is there to prepare for and how to prepare for it?

3) Calmness: Even if one is prepared, does he remember it and is he confident and calm, or does he change his plans impulsively?

Etc. (Just some my problems I am aware of.)"

 

Good points, I will add them to my list of current issues

 

"Hope it helps a bit and good luck."

 

I does indeed, thank you. Now I just need to work out how to see this in RT, how to trade it and how to go about back testing whatever I come up with. Shouldn't take more than today, lol

 

 

Cheers

 

[Head2k 10]

Is this not the same thing? Also does the amount of effort expended getting here from the recent high mean that a 'normal retracement' is unlikely?

You're right, it is the same thing. In fact, by what I said I introduced a bias. By "another test" I meant a successful test. So I was biased towards shorts. In the next step I corrected myself and allowed for considering another option, too. Optimal would be to expect a test and have no bias about how it resolves itself. Then it would be the same thing, as you point out. And maybe you are right about that effort thing, too. I just don't know how unlikely. So I try to remain open to all posibilities (though I am biased way more often than I would like).

 

(5) This one I would not be able to interpret, it could be bears trying to go down and bulls stopping them or as you say visa versa. I suppose this is one of those instance where you would need to view it in RT in order to get a feel for who stepped in and when (if you are capable of such things, I am not!). The fact that price is turned away from the turquoise line with no effort just after this : does it mean that bulls are not quite sure of themselves yet or is it unimportant?

I assume it was an attempt for a rally because price poked up. So bulls tried up and as soon as they encountered first troubles they withdrew, i.e. they didn't continue pushing hard. So yes, they weren't quite sure, IMHO.

 

(6) Bulls are smacked relatively hard here after their attempt to go up, this would have made me think that we would see lower prices but then price recovers to almost the same level with little opposition. So again I would have a hard time understanding what was likely to come. You say that bulls tried twice more to see higher prices but I see bears trying to go down at the first volume spike an bulls successfully holding them back for now. Followed by withdrawal on behalf of the bulls until 1200 where they think their chances of success might be higher.

You need to realize where is this action hapening in relation to the very recent one point wide congestion (1201 - 1202). Bulls are trying up, so it's them who must show effort. Sellers don't need to try to pull price lower, they just take advantage of the bulls' effort and sell at good prices (above that tiny congestion). And the fact that the bulls' effort is lessening forces sellers to sell lower and lower, or they have nobody to sell to. If there is no effort on bulls' side then the sellers might start to be worried that there will soon be nobody to sell to even at current temporary value area (that tiny congestion) and then they are likely to pull price lower.

 

(7) I would not have noticed this lack of participation until at least much later if at all, context context!

I posted a 5 sec chart first because I wanted to start with detail and then to show how wider context can change the interpretation of what's happening. In reality you would do it the other way around, of course. And if you knew the importance of 1199 you would be probably watching closely what traders do there.

 

But there is trading activity (more so than the fall between (6) & (7)) so wouldn't that mean that there was supply just more demand?

I am not quite sure if there is more activity that during the fall between (6) and (7), if you count activity per wave. But yes, as you say, wolume was somewhat high. so what you said is true. What is imortant is how fast price got up, anyway.

 

I suppose you could reasonably expect a break either way and play it that way as the range is small.

I can't be of service as this is the type of thing one must test by himself.

 

Honestly, no! I can see that 8,9,10 are all bullish and that 12,13,15 are bearish but 14 is showing a higher level of support albeit costing more effort to maintain but maintained it is. I suppose any subsequent move past the level where (14) occurred on lower volume would indicate a withdrawal of bulls and that lower prices were likely?

I wanted to illustrate a gradual decrase in bulls' confidence and increase in bears' confidence. This gradual shift represents different levels of confirmation for shorts (wider context aside).

[Head2k 10]

I apologize for this off topic post but can anyone tell me what platforms offer a 5 sec chart TICK Q or TICK overlay, like Head2k's charts... I am using Ensign and Ninja. Anyone now if its possible with these? Thanks for the help and again my apologies for being off topic.

 

Thanks.

 

I use AmiBroker 5.20 Pro with DTN IQfeed.

 

May I inquire as to the monthly cost both for charting and datafeed

www.amibroker.com

www.iqfeed.net

 

I would use a PM for this stuff, but since there are more people asking I will write a short post here and we can continue on topic then.

 

AmiBroker (Professional edition) is for $279 one time fee. You have free upgrades for 12 months. (Then $139 for upgrade).

AmiBroker was my first choice and I am content with it (though there are some details which bug me). I learnt how to program in AFL (AmiBroker Formula Language) and I like that in AmiBroker you can code virtually anything. Maybe you would like to know that AmiBroker is only for charting and has no trading interface, and if you are considering daytrading, it is good to know that it can display only 5 sec and 15 sec time charts, and then 1 minute or greater. But it can display custom tick, constant volume and range charts, too.

You can download a free trial, but I think it is not a professional version, so no intervals under 1 minute and no tick/CVB/Range charts and no real-time data possible.

 

DTN IQfeed costs $60 / month (basic service) + exchange fees for real-time data ($30 for CME e-mini, for example). There is a calculator on IQfeed web site.

However, you can plug IB feed to AmiBroker too, of course, and that would be a cheaper option. Disadvantage of IB is slow and quite limited backfill and aggregation of ticks. Though if you use a 5 sec chart you don't have to care of the aggregation. There is one advantage of IB over IQfeed, and that is that IB offers native 5 sec data. IQfeed offers 1 minute data and then only tick data. So if you want to use a 5 sec chart with IQfeed data, you need to keep a tick database. With IB you can maintain a 5 sec database, which is smaller and faster (as AmiBroker has less data to load), considering the same length of history, of course. Or you can keep much longer history with the same database size.

 

If there are still more questions about AmiBroker or IQfeed, please start a new thread in appropriate forum and let me know so I notice it.

 

------------------------------------------

 

Db Edit: Rather than make another post, I'll insert here that Sierra Charts costs from $17.50/mo and the IB datafeed is from $10/mo to free. Any other posts relating to this question will also be added here so that any inquiries can be linked to this post. Further questions should be asked via PM or in some other more relevant thread. This is not to discourage questions but to make the answers easy to find.

Edited February 18, 2009 by DbPhoenix
Add SC info

[pinetree 10]

Posted is a chart over a ETF on the Swedish OMXS30 Index. I'm trying to understand the movements within the recent range and I have a hard time interpreting the way volume/trading intensity is behaving realtive to price.

 

The market has, like most other markets, seen a rapid decline where selling preassure has been larger than buying preassure from late august to october. In october the market found a potential Preliminary Support @ around 70 and a possible Selling Climax of some sort occured @ around 65. A rally followed and the top of that rally (automatic rally?) marked the high of the trading range that has since developed.

 

In the trading range that has since developed the volume/intensity is clearly larger at the bottom/lower half of the range than it is in the top/upper half of the range as marked by red / blue rectangles.

 

I am not sure how to interpret this volume/intensity behavior. There seems to be more interest in the market in the lower half of the range where the volume/intensity increases and vice versa. Range on each individual bar also seems to be higher in the lower half of the trading range than in the upper half where the individual bar range seems to be smaller.

 

What I'm trying to understand is of course if this action in some way indicates whether there is a greater likelyhodd of accumulation or re-distribution going on within the range.

 

As I interpret it (pls correct me since this is what I am uncertain about) the is a greater likelyhood that accumulation is going on. Buyers are not yet ready to push the stock through the top of the range (jumping the creek) and therefore buying preassure diminishes as the stock reaches the top of the range. Selling preassure is also low up there. Sellers on the other hand are working hard to push the stock through the bottom of the range (as can be seen by the increased intensity in the lower half of the trading range) but buyers have (so far) stepped up to absorb the increased selling.

 

Pls comment on above thoughts and posted chart.

[Head2k 10]

Pls comment on above thoughts and posted chart.

IMHO it is hard to tell whether we are looking at accumulation or re-distribution, or to say it more down to earth, whether it is going to go up or down.

I believe your observaions are correct. Buyers lack effort on the up side but absorb on the down side. This could suggest accumulation as you say. But so far price is definitely not ready to head north, because supply obviously hasn't been removed yet. And maybe it even won't be removed and at some point buyers will give up. If that happens and if they chicken out and start throwing back all that they have accumulated we can see a pretty fast decline. On the other hand, if buyers endure and you see lessening effort on the down side and lifting supporting points because there is nobody to sell to at lower prices, then the accumulation is more likely to be successful.

 

(Bear in mind that I am a beginner.)

[pinetree 10]

Thanks Head2k. Sounds reasonable to me. From that particular chart it is probably to early to read too much into it. If prices would break to the upside one could possibly look back and say that it has a decent base to run away from.

[pinetree 10]

Another chart that I find to be interesting is the UYG chart. Looking at the chart one can see that each successive down leg is shorter than the previous one. Volume has been consistent in increasing as the index breaks to new lows. However, looking at the last break to new lows, the volume/activity didn't pick up.

 

My interpretation of this is that for each down leg, buyers have stepped into the market (and thus the increased activity as the index reaches new lows). For each leg down buyers have been more aggressive (must have been so since the distance that sellers manage to push price decreases...) However, at the last push down activity didn't seem to increase. Thus, sellers might have exhausted themselves as activity is low and spread is narrow.

 

Buyers now have their chance to take control and push prices higher.

 

I would greatly appreciate if someone would take time to comment.

[Head2k 10]

I would greatly appreciate if someone would take time to comment.

Clear stairstepping downtrend to me. And on a larger scale the pace of the move is not decreasing. As you say the activity didn't pick up. Buyers have a chance. But will they take it? And if they take it what will they be able to achieve? If they show strenght, violate the stairstep or at least the trend line, or if they stop the decline and let a base to form, then one can start think of buying. Now this would be just catching the falling knife, IMHO.

 

Note: If you trade EOD, you can also consider posting to EOD thread.

[MRW 10]

These charts are inversions of the price action in the charts that accompany Determining The Trend of the Market by the Daily Vertical Chart in the post DB put up.

 

I had, for some time, asked myself how the opposite price pattern would look with the same volume as so many times during the trading day I would see things that looked like the opposite of these price patterns.

 

Interested in any and all insghts and comments!

Full page fax print.pdf

[BlueHorseshoe 10]

Hi DB,

 

Taking you up on your offer of help with volume analysis from the CouldaWouldaShoulda thread . . .

 

I shorted the ES into the close today. Although this decision was made systematically, here are the general 'reasons' behind it:

 

1) The long term trend appears to be down.

 

2) The market has become over-extended to the upside in the short term.

 

And here are the additional factors that encourage me to think that this is a sound decision, even though these factors form no actual part in my trading:

 

3) The market has traded to the top of a downward-trending channel.

 

4) Volume was lower today, despite the move higher. I currently tend to regard all volume in the indices as buy-side volume, and assume that the market is not actively traded short (obviously it is, and so this is a crude generalisation, but it seems to be statistically valid). I therefore expect high volume at market bottoms (as buyers step in at new 'bargain' low prices), and low volume at market tops (as buyers refuse to buy at unreasonably high prices).

 

I'd love to here your thoughts on any of the above, or any questions you have that you think may help me to better understand the significance of volume within this structure.

 

Many thanks,

 

BlueHorseshoe

Edited June 17, 2012 by DbPhoenix
Title