Volume Splitter

[sw9 10]

This is one of the indicators I had looked at in my past research of "spliters", also the author said it works better with Ninja than with TS.

 

8 min video:

 

http://www.traderslaboratory.com/forums/56/volume-splitter-5824-new-post.html

 

Steve

 

 

 

TL changed the link after I posted it, not sure whats going on there.

 

It is a closed ended video, meaning no credits given for sales purposes.

 

Steve

[Tasuki 10]

From what Richard Todd has already written, I am guessing that maybe line thickness should be determined based on the ratio of large trader activity to all other activity for that particular market. For example, there might be some kind of average ratio between "total delta" and "large trader delta" for a given period (such as prior 3 cycles). From time to time, the "large trader delta" might be proportionally greater or smaller compared to all other activity. Just a thought.

 

I'm going to go out on a limb here and disagree with you, kh, just for the sake of discussion. This might be a case of the amateur criticizing the expert, but I don't THINK that you're interpretation is correct. From what I could tell after my week long trial in EOTPro's very interesting room, my impression was that the thickness of their vol splitter line was simply a function of how many contracts were being traded. If you look at the thickness of the line compared to time, there IS a correlation--in the morning and the afternoon, you'll see that their Vol Splitter line is more often thick, and during lunch, it is more often thin, indicating less participation by the large traders during lunch.

 

Of course, there are two (at least) possible interpretations--perhaps, as you said, the ratio of large/small traders could change (or large/total traders), or alternatively, my theory could be correct that the absolute value of large trades could change over the lunchtime period.

 

I'm not enough of a mathematician to figure this out, but it seems less likely (to me) that a ratio would change than an absolute value. Think about it--don't small traders need to grab a lunch too? Why would small traders continue trading during lunch while the big boys went to Minskys for steak and martinis?

[kh_model 10]

Thank you, Tasuki for your comments and also for your part in making this thread one of the best I've seen yet. I have to say the same to everyone else here, too.

 

I'm no expert. Didn't even do the trial yet. You probably have a clearer perspective.

 

I did notice that Richard Todd has written that he only expects "large trader" activity to be visible when there is a sense of urgency, and no time to conceal the activity.

[Tasuki 10]

I did notice that Richard Todd has written that he only expects "large trader" activity to be visible when there is a sense of urgency, and no time to conceal the activity.

 

Very good point, kh. Richard doesn't seem to be using it as a divergence indicator, as I've been trying to do (with some success I might add). He seems to look at his vol splitter as just an indicator of the commitment (or lack of it) by big traders to a given move.

 

For everyone's consideration:

I think we should look into the difference between phall's Vol Splitter MACD (VS-MACD) version 1 and 2. I did a quickie analysis on friday, and there did seem to be some differences. I think phall was saying that the first version had a glitch, so theoretically, the second version *should* be better.

 

It might also be profitable (in the general sense) to look at the difference in the VS-MACD between the small (1-5 contracts) and large (100-9999 contract) traders. Is the same nearly-inverse relationship present, as in the original EOTPro Volume Splitter?

 

For anyone who is taking the EOTPro trial, it might also be useful to see whether the new VS-MACD version 2 tracks the EOTPro version any more closely than the first version (which didn't do too bad of a job).

 

Finally, for anyone who understands the coding discussion regarding the thin line vs thick line (weak participation vs strong participation) and can find a way to include that in the code of the VS-MACD, that might make it even more useful.

[phall 10]

Hi all

 

Thanks for all the discussion on this; definitely the trade volume for the group of interest is critical. i have found that volume is critical for using the splitter and that both Taskui's and kh_model's thoughts are correct, because the average of the longer term relative volumes are pretty consistent but there are short term deviations from this that are very interesting.

 

Attached is a volume histogram indicator that counts the total volume in the contract range of interest. I like to put it under the normal (total) volume indicator and by comparing the two you can see quickly the relative volume of the "split" blocks. there is also an average line plotted over it.

 

Name: VS_Volume

 

Note: make sure the volume is set as you want: trade volume vs. ticks will give different answers

 

as far as the VS_MACD v1 vs. v2; the v1 definitely has a bug (though minor); i would be VERY surprised if it gave better results, but let's definitely check it out.

 

I am also wondering whether anyone has played around with a better oscillator method than MACD and what they may have found. Please post if you've tried anything! Haven't had much time to work on this, so interested...

 

 

phall

VS_VOLUME.ELD

Edited June 22, 2009 by phall

[phall 10]

As requested, here's a very short snapshot of the VS_MACD by phall, from permalink #278. Just found it 40 minutes before the close, so the charts don't have much on them, but I'll do another one on Monday.

Both charts ES, first is 1 min, second is 233 tick.

Geez, looks like you got something here, phall! I'm groovin' on those divergences.

Your hippie turned trader,

Tasuki

 

Tasuki: if you watch the volume, you should be able to decipher/explain the difference in VS_MACD performance between the 1min and ticks charts you saw in the charts from this post. if you could shed some light on the performance of tick charts vs. time charts for the indicator that would be awesome

 

 

phall

[wlbw 10]

Phall,

 

Can you use the vs_volume to determine the volume of limit or market orders in a specific range?

 

Thanks

[Tasuki 10]

If you could shed some light on the performance of tick charts vs. time charts for the indicator that would be awesome

phall

phall, For VS_MACD1, my experience has been that tick and volume-based charts defininitely tell a clearer story than time-based charts, at least the 1 minute and 5 minute charts that I studied. I've got alot more work to do, but so far, my 7777 volume chart on the ES has definitely been the winner in terms of useful information and clear divergences. You might not want to extrapolate that observation too far, however, because I've only collected two full days of data. Let's look at it next week.

[RichardTodd 10]

Richard doesn't seem to be using it as a divergence indicator, as I've been trying to do (with some success I might add). He seems to look at his vol splitter as just an indicator of the commitment (or lack of it) by big traders to a given move.

 

I wouldn't worry too much about what I do, if I were you. I trade fast, on fast charts, and when I use the splitter, it is also turning very quickly. It's not set up to show me divergence. We have another, smoother, volume indicator called VR4x1 which I can use when I trade divergences off fast charts. That doesn't mean you can't use a splitter for divergence, as long as you give it a big enough time horizon.

[phall 10]

Phall,

 

Can you use the vs_volume to determine the volume of limit or market orders in a specific range?

 

Thanks

 

hi wlbw:

 

No. this, like the VS_MACD just compares the closes relative to each other at each tick for the block range of interest. Order information is not included.

 

What you are describing would need to be based on Level 2 information, and involves following the order book

[Tasuki 10]

With all the time I spend going out on a limb, you've got to wonder when the branch is gonna break. So, I'm going out on a limb---

Sliced Bread has officially been replaced as humankind's best invention---the new champion is phall's indicators.

OK, so I've only been looking at them, in combination, this morning, but dangit they seem to be good.

 

Chart 1 simply shows that there are indeed differences between the VS_MACD1 and VS_MACD2. Yawn.

 

Chart 2 shows how the VS_MACD2 and VS_Volume can work together to give you a clearer picture of what the big traders are doing (and if you care, what the small traders are doing too).

 

 

Chart 3 shows another example of divergence backed by volume--this positive, bullish divergence is coming after a nasty bear move this morning, and the quality of this bullish divergence suggests that maybe the bulls are gaining a bit of traction in the afternoon session.

 

Chart 4 is why I got into this Volume Splitter thread in the first place. It took me years to finally get the principles of VSA sufficiently stuck in my head that I believed them and saw them working in real time. As some of you know. VSA is based on Wyckoff's work, but neither Wyckoff nor his modern counterparts have ever been able to see direct evidence of the influence of the big traders--that influence has always been implied. Well, the whole point of this volume splitters thread has been to try to see visual proof on our charts of the actions of the big traders. If phall's indicators are really working properly, we should be able to take the principles of VSA and visually observe them on the chart, and here is one such *possible* example. I think I have identified an example of the infamous "upthrust" from the VSA thread. The scenario makes sense--the big traders are short, but price has come down so far that every monkey and his/her uncle is short, and the big traders need to convince some suckers to go long so they can wash them out and make the market go down again. So, they create an upthrust--they buy against their own positions with moderate volume--not enough to screw themselves, but enough to spook the shorts, and convince the unwary to go long. Then, they take them all to the cleaners, driving the market down again.

 

Sorry to be so longwinded with that above explanation, but this has the potential to be very exciting. If I am right, we can use phall's excellent indicators to observe VSA principles at work, thereby giving retail traders a clarity they've never had before (except, perhaps, with that very expensive Market Delta software).

[pimind 10]

Instead of trying to replicate the EOt vol Splitter why don't we try to come up with a better indicator to track large trades. The EOT splitter is not accurate all the time it is as reliable as other indicators if the are used correctly. I use the eot indicators and they are not he holy grail. I think that we are trying to recreate something that we think is perfect when it is not perfect instead of concentrating on coming up with a volume indicator that will do a better job than the current volume indicators available.

 

We should first define what we want.

 

Personally I think a good place to start would be to get an indicator that would track large traders buying, selling, #blocks being traded, and Rate of Change.

 

The blocks would be represented by line thickness.

 

This is my opinion anyway.

 

Also the volume splitter works much better on a larger time frame when you take trades on a smaller time frame. But then again so does a moving average.

[DbPhoenix 42]

 

Chart 4 is why I got into this Volume Splitter thread in the first place. It took me years to finally get the principles of VSA sufficiently stuck in my head that I believed them and saw them working in real time. As some of you know. VSA is based on Wyckoff's work, but neither Wyckoff nor his modern counterparts have ever been able to see direct evidence of the influence of the big traders--that influence has always been implied. Well, the whole point of this volume splitters thread has been to try to see visual proof on our charts of the actions of the big traders. If phall's indicators are really working properly, we should be able to take the principles of VSA and visually observe them on the chart, and here is one such *possible* example. I think I have identified an example of the infamous "upthrust" from the VSA thread. The scenario makes sense--the big traders are short, but price has come down so far that every monkey and his/her uncle is short, and the big traders need to convince some suckers to go long so they can wash them out and make the market go down again. So, they create an upthrust--they buy against their own positions with moderate volume--not enough to screw themselves, but enough to spook the shorts, and convince the unwary to go long. Then, they take them all to the cleaners, driving the market down again.

 

Hello, Tasuki. I saw your post in the VSA Forum regarding your post above. I'm not a VSA expert, though some people think so. But I doubt that a VSA expert would advise looking for thrusts with an interval this small. But then, who knows?

 

As to whether or not VSA is based on Wyckoff, there's been a spirited discussion about that over the past couple of days. If you'd like a Wyckoff take on this, let me know (Wyckoff was a tape reader, so this kind of interval would be no problem for him). But it won't involve indicators, so it may be wildly off-topic.

 

Either way, I'm glad this is working out for you.

[Tasuki 10]

Db, Thanks for your reply. Yes, I agree, such a small interval is not conducive to VSA--I started these charts at midnight last night, when trading was thin, and I wanted to see *something* so I used a very small interval. This is only an initial test. Tomorrow I will put this on longer charts to see how/whether it works. Today's posting was just sort of a "proof of principle" test.

 

Yes, please do enlighten us on Wyckoff's approach to the chart I've posted. The whole reason I posted on the VSA thread was to encourage a multi-disciplinary approach. Being off topic is a bad thing when you start mentioning fairies and cupboards (see my VSA posting for what not to do), but a synergistic approach to the markets, melding two or more valid techniques, can be extremely helpful to understanding the markets.

[RichardTodd 10]

I think that we are trying to recreate something that we think is perfect when it is not perfect instead of concentrating on coming up with a volume indicator that will do a better job than the current volume indicators available.

 

I agree (and have said more than once) that it doesn't do you any good to try to match our one implementation bar-for-bar.

 

I would caution that what you probably want is a family of related indicators for various tasks. To say that any indicator is "accurate" or does "a better job" without context is a bit off the mark in my opinion. A moving average is always 100% "accurate" if it is calculated correctly, and nothing could do a "better job" at showing you the moving average.... it just might not be the best fit for a particular trading plan.

 

For certain applications, our splitter, or phall's, might be perfect. For others, you might want to manipulate the data a different way. For tape reading/VSA-type stuff, I'd massage data a bit differently (in particular for starters I would try to bring out cases when traders seem to have trouble eating through price levels, as this would help you see the limit-order side of large supply and demand). In fact I'm starting to do statistical research on that very topic in my spare time.

[DbPhoenix 42]

Yes, please do enlighten us on Wyckoff's approach to the chart I've posted. The whole reason I posted on the VSA thread was to encourage a multi-disciplinary approach.

 

Okay, but everyone please understand that this has nothing to do with coding and indicators, so if that's what you're looking for, you may want to just breeze on by. Tasuki extended the invitation, so it's all his fault. OTOH, those who just can't code may find this to be an acceptable alternative.

 

First, the context, as always. You were talking about thrusts and sucking longs into bad trades. It's worth knowing that distribution has been going on all month. And this is fortunately real simple. (Though it's not classic Wyckoff as it splits the volume; one can detect this stuff with a regular chart, but it's more subtle, and I can guarantee that Wyckoff would have used this split volume if it was available to him because he liked an indicator similar to OBV.)

 

Note here that the NYSE and the SPX track each other pretty well.

 

 

 

 

And if you're wondering So What?, it's because data providers split up volume and down volume for the NYSE and the Nasdaq. Matching up the Nasdaq UD volume with the Nasdaq is no problem. But there is no UD volume for the SPX. But the SPX and the NYSE track each other so closely that it's not a big deal. And that's so what.

 

So here we have the up volume -- that is, the volume of advancers -- for the NYSE plotted below the SPX (is this starting to make sense?):

 

 

 

 

Note that even though that first push up at the beginning of June looks pretty good, the up vol is pretty lame. And it gets lamer and lamer as the month rolls on. Finally, Friday, we get this huge push up in up volume that results in zip movement. This is not good. At least for longs. And all of this is a clue as to what to anticipate regarding today's action (not predict; anticipate).

 

 

Now without going into a lot of details regarding support and resistance (such as that the midpoint of last Wednesday's range was 907), note here that the market tells you that it's finding, or trying to find, support at 907 to 907.5 (this is NY time). When price finally drops below this level at 0824, note how pitiful the volume is when traders try to push it back up above this level, from 0825 to 0829. This is a further indication that the line of least resistance is going to be down:

 

 

 

 

Where one finally makes the decision to short is a personal one, but there are many places to do so. An aggressive trader might short under the above failed attempt to get back past support (now become resistance). If he wanted to wait for the market open, he could short at any of the places I've indicated:

 

 

 

 

Once you're in, it's just a matter of letting the trend do the work. The trend, after all, as we know, is your friend. Like the policeman.

 

 

 

 

As long as the trendline hasn't been violated AND the last swing high has not been exceeded, all you have to do is sit back and relax. No muss, no fuss, no ulcers. As for whatever thrusts or volume anomalies may take place in the meantime, who cares? It doesn't really matter as long as that trend is in place.

 

.

[phall 10]

Chart 1 simply shows that there are indeed differences between the VS_MACD1 and VS_MACD2. Yawn.

 

Chart 2 shows how the VS_MACD2 and VS_Volume can work together to give you a clearer picture of what the big traders are doing (and if you care, what the small traders are doing too).

............

 

Tasuki

thank you for the testing, your points about tick/vol charts, and for the kind words about the indicator approach.

 

couple comments:

1) The difference in Versions 1 and 2 look minor on the oscillator, but I can tell by the slope that the second VS_MACD that this is counting more accurately. definitely use this instead of version 1. it will be more important as you move up in time fractal

 

2) the upthrust behaviour is the big traders running stops. they generate a temporary volume spike and get folks to panic. you can watch this using the relative volume of the larger traders. it may or may not cause a divergence to form in the MACD ; depending on the setting of the MACD averaging lengths relative to the timing of the behaviors

 

3) the divergences you are seeing are the ones that are within the MACD timeframes; that is why some of the turn divergences appear so clearly. This is the big issue with all averaging approaches; since the MACD is just the difference of two average lines the same care must be taken.

 

to Pimind's point; there are a million ways to display the basic information generated by the "block engine"; let's think up something novel

 

 

phall

[AgeKay 10]

I know my comment might or not be appreciated but I had to get it out (since I have to read all of new posts):

 

The concept of the Volume Splitter is very powerful but all of you are using it wrong since you don't understand what it's really good at. It's not about divergences, other stupid indicators, longer term charts or any kind of bar or candle stick chart for that matter. Read Wykoff's book about tape reading and you might understand what it could be useful for. I therefore think the last 30 or so post added little to no value to this thread - too little understanding of the matter and too many assumptions being made which is not uncommon in what people call "technical analysis" nowadays.

 

Btw, the only book published by Wykoff that had any kind of value was the tape reading book, so I don't understand the fuss about being based on Wykoff or not. Who gives a shit if he used it? He obviously sold out later on in his career writing books about indicators like all the wanna-be-trader authors do nowadays. To ensure you really don't like me, I think VSA belongs to the "bushwa" category as most of the other bullshit out there. Technical analsyis is like religion: people tend to turn their brain off (I guess I have insulted 99% of people here now, but I don't care).

[BlowFish 10]

Hey AK I am not going to disagree with you (if you pardon the double negative). I would not go as far as saying it is 'wrong', whatever works for people. You can make pretty nice oscillators that seem to diverge at turns if that floats your boat. At the end of the day it doesn't float mine, though I try and remain open minded to the idea. Malcom Robinson is another guy that has gone that route he sells an indcator that is based on this stuff with a simple 20ema smoother. I am sure there are others.

 

Also agree with pimid (and always have been of that opinion) 'emulating' is not the way to go. Implement concepts that make sense to you if it ends up looking like something else...well so be it.

[phall 10]

I know my comment might or not be appreciated but I had to get it out (since I have to read all of new posts):

 

The concept of the Volume Splitter is very powerful but all of you are using it wrong since you don't understand what it's really good at. It's not about divergences, other stupid indicators, longer term charts or any kind of bar or candle stick chart for that matter. Read Wykoff's book about tape reading and you might understand what it could be useful for. I therefore think the last 30 or so post added little to no value to this thread - too little understanding of the matter and too many assumptions being made which is not uncommon in what people call "technical analysis" nowadays.

 

Hi AK:

 

Thanks for the feedback; it's nice to hear other points of view...

 

Please don't take this negatively; but if you could elaborate a little on what you specifically think we're missing in the VS approach that would be alot more helpful than generalized observations.

 

phall

[AgeKay 10]

Hi AK:

 

Thanks for the feedback; it's nice to hear other points of view...

 

Please don't take this negatively; but if you could elaborate a little on what you specifically think we're missing in the VS approach that would be alot more helpful than generalized observations.

 

phall

 

Thanks for your polite request.

 

I'll try to explain why I think VSA and other approaches based on bars/candles and indicators based on these are questionable to say the least. I have not wasted too much time looking into VSA so please correct me if I am wrong but it seems to me you are comparing price bars and volume bars with previous price bars and volume bars.

 

The general problem with price bars is that it's just a summary of a lot of information with just 5 pieces of information: periodicy, open, high, low, close. The open and close is completely meaningless on all bars but bars that represent an entire trading day. Even the high and low has little meaning since the periodicy is arbitrary. Due to this bars hide important price action information such as repeated tests of local high and lows. I don't think I have to get into why indicators based on these limited meaningless pieces of information could have any value.

 

Then you have this volume bar that shows you the number of contracts traded during the specified period. That's all the information it gives you - no more no less. It does not show you how many contracts traded at each price, how agressive the traders were at each price and the timing of the trades. And then people compare the volume of one bar with the volume of another. This is ludicrous. There might be 1000 different scenarios of trading and they can all end up with the same number of contracts during that periodicy and the same looking price bar. No meaning can be derived from the volume alone. Watch trades at every price change and you will understand how wrong interpretations based on VSA are. They might still make the right decisions based on luck or having acquired a good feel for the market, but VSA cannot not be attributed to their success.

 

I just want people to really really think about whether an approach makes even sense (rationally) before following it. Please use your brain.

[Tasuki 10]

completely meaningless....limited meaningless pieces of information ....ludicrous.... No meaning . Please use your brain.

 

Actually, I am using my brain, and these "meaningless" approaches are making me money. Your theoretical objections notwithstanding, these approaches work, and pretty darn well, too.

 

Out of curiousity, AgeKay, how do you take money out of the markets? That's not a facetious question, but a serious one. What is your methodology? In an earlier post, I was encouraging an interdisciplinary approach to the markets. So, what has meaning for you?

Edited June 23, 2009 by Tasuki

[pimind 10]

agekay,

 

I agree with you on the type of information that a bar gives us. I think what we are trying to do is get as much information from the bar a possible for our own interpretation. By your comments I assume that you only use the tape ie, time and sales. Although some may be able to trade without bars or indicators, others myself included need a graphical representation of what is going on in the market. I'm sure that we would all appreciate any insight that you may have that will add to this thread. Slamming an approach is easy trying to add to it and increase its value by maybe taking it in another direction has value.

 

As I'm sure you agree no approach including your is flawless, unless you have the holy grail everyone talks about. Trading in 80% mental. The ability to stick to a trading plan and execute it. Any tool or knowledge or ability that allows you to do that is far from meaningless.

 

I personally use indicators to visually assist me in making decisions, and give me the confidence to execute the trade. I have been trading full time for over a year and manage to make a living at it.

 

Again if you have any positive contributions that will assist in developing this indicator, "the purpose of this tread" then it would be greatly appreciated, otherwise i'm sure there are other threads that discuss the legitimacy of indicators and bars.

[RichardTodd 10]

The concept of the Volume Splitter is very powerful but all of you are using it wrong since you don't understand what it's really good at.

 

Oh, I think I know what it's really good at, but I've watched it every day for almost a year now. It takes time to see the nuances. My hair stands up a little when I see people interpret the splitters in ways I think are probably wrong... but I don't see any reason to get bent out of shape about it. They are making inferences from too few cases, plain and simple.

 

Imagine how much more helpful it would be if you simply posted an example of what you'd consider good analysis. Since you seem very sure of yourself, I'm sure it would be of interest to all. More interest than essentially calling everyone an idiot, at any rate.

[pimind 10]

kudos richard.

 

I have just started using the volsplit and am just starting to see its nuances, it has also made me study volume and realize how important it is especially at key points.