Can Price Move Without Volume?

[gabroo_munda 10]

Hi Everyone,

 

I am new to this stuff so please excuse this dumb question.

 

As I understand.....volume is the number of completed transactions (buy and sell). So can price go from one point to another without volume? To clear my point...lets say there are only 2 participants. I want to buy commodity A. I tell the seller that I'll pay $200. he rejects...and i up my offer to #300. he does not agree and finally i make an offer of $400. So now the price has moved from $200 to $400...without any volume as we did not do any transaction. Is my understanding correct?

 

Thanks

[atto 20]

In your example, you're offering higher and higher, but he can keep refusing forever. Price is simply the last traded price. Until a transaction takes place, there is no price.

[uexkuell 10]

I am new to this stuff so please excuse this dumb question.

 

Certainly an important point and not a begginers question in my view.

 

Quite frequently you can see price move with only very few volume (very rarely even without volume - this only in a not so liquid instrument when heavy news are appearing).

 

Anyway moves on low volume are to be noticed.

 

 

Unfortunately low volume moves can mean very different things and that's why people get confused using volume (and sometimes even refuse to use it).

 

 

Just as in your example. The person that refuses to make the deal can have completely different reasons for doing so:

 

1 "Commodity A is so valuable, I won't give it away for cheap."

2 "This guy desperately wants A, let's see, how far he will go! The more I wait the more anxious he will become to get it."

 

1 Is at the beginning of a move

2 Is at the end

 

Isn't this the same?

No, because "the end" may be quite some time and $ away.

If you ever entered into a trade at the last exhaustion spike and the spike extended for some time and hit your stop loss only to turn some time after you will know that mentally it is completely different.

[monad 10]

If you wish to trade a liquid market, then volume matters, not necessarily in your trading (as you could choose to trade via other technical analysis) but in the market place.

 

As to the periods in which prices keep rising on low vol, especially on slow grind up days, simple, sellers are not willing to sell, and demand keeps creeping up and vice versa. If sellers appeared in force, volume activity would increase, however price could still keep rising when buying pressure is greater than selling pressure and vice versa.

[BlowFish 10]

Just a small correction a transaction is generally known as a 'tick' or a 'print' (from the old paper tape days) this can be for more than 1 contract the volume would be the number of contracts/shares/units of currency traded on that transaction.

 

Markets can and do 'gap' (even intraday) thinner and more volatile markets tend to be more prone to it. You might want to have a read up on auction markets and bid ask spread (any time that's more than a tick wide you have a good chance of a 'gap'). Oh by the way tick in that context is the minimum price movement for the instrument. There's not that much Jargon in trading but worth getting to grips with the basics

[gabroo_munda 10]

Thanks for all your replies. It makes sense...

 

My next question will be....why do people get excited with volume spikes. If there is huge volume at a price bar....then all it means is sellers believe they cannot get a higher price....and buyers believe they cannot get a lower price. So as such high volume is meaningless as prices can either direction after this volume spike.

[rigel 10]

Spikes only mean brakes are being applied, that's all, markets can go sideways or momentum can carry the price beyond, but some like to consider this as automatic signals for trend reversals. especially "those who advocate that markets do not like up or down bars on high vol":)))

[DbPhoenix 42]

Thanks for all your replies. It makes sense...

 

My next question will be....why do people get excited with volume spikes. If there is huge volume at a price bar....then all it means is sellers believe they cannot get a higher price....and buyers believe they cannot get a lower price. So as such high volume is meaningless as prices can either direction after this volume spike.

 

That's true, and my congratulations for consolidating all the remarks in a way that makes sense for you.

 

Why do people get excited about volume spikes? Greed or fear. Amateur traders see volume spiking and think Oh God I'm Missing Something, and they try to jump on -- or out of -- a speeding train. Sometimes that volume can propel traders to a new level. Sometimes, at least in an upmove, it's pure distribution, and when new buyers find they have no one to sell to, price can plummet just as fast as it rose.

 

Part of the problem with regard to discussing price and volume is that not everybody is talking about the same thing. And some people think that definitions don't matter. But they do. And if one is going to think clearly about what's happening in front of him, he needs also to be clear about the language he uses to describe it, even if that language is purely internal.

 

Some people will say, for example, that they don't use volume, that volume is not important, even that volume is useless. But without volume, that is, trading activity, there would be no transactions and hence no price movement. That in itself makes volume important. What is often meant by statements like these is volume as an indicator, particularly a color-coded indicator, and those who feel that this sort of volume is pretty useless may have a point.

 

There is also the matter of volume as trading activity (which is how Wyckoff looked at it) and volume as "intent", which is essentially what bid and ask "volume" are about. But the trader who trades according to what people intend to do may not make the same decisions as one who trades according to the transactions that people are actually making. I may intend to sell the strawberries in my refrigerator for $100 a pint, but nobody's going to give a damn unless somebody actually meets my price and we conclude a transaction. That then becomes the price.

 

But is it the correct value? And mixing price with value is another area where traders tend to trip themselves up. Going back to your first post, a trader may have shares that he thinks are worth $10. But he can't find a buyer who thinks they're worth more than $5. The seller's price is $10 because that's where he's placed their value. The buyer's price is $5 because he's placed their value at that level. But that doesn't make either $5 or $10 the "price". The price is determined through negotiation until there is an agreed-upon amount, maybe $7.50. And if the two parties conclude their negotiation, the transaction takes place and $7.50 becomes the price, even if only for a few seconds.

 

Therefore, if intent matters to you and you believe that bid and ask "volume" truly reflect intent, then the bid and ask volume may be useful to you. But none of this has anything to do with the volume that is trading activity which in turn is the result of actual transactions which in turn result in prices that are printed on the "tape".

 

If there is no transaction, there is no volume, and everybody just stands around holding hands. Once a transaction takes place, then you've got something concrete, a benchmark to go by, and some clue as to the action you should take.

[sevensa 10]

Spikes only mean brakes are being applied, that's all, markets can go sideways or momentum can carry the price beyond, but some like to consider this as automatic signals for trend reversals. especially "those who advocate that markets do not like up or down bars on high vol":)))

 

Those who advocate that market do not like up or down bars on high vol consider this a sign of potential weakness/strength and to start looking for confirmation. Not as an automatic signal for trend reversal.

 

Amazing how people just cannot let an opportunity go by to snipe at VSA. For the life of me I just do not get it. If you have something working for you, why the need to make negative remarks at other methods? Everyone trades differently and there are many different ways to trade successfully. There is no need to be derogative about other methods that are different than yours.

[BlowFish 10]

I'd just like to add a wee bit about bid and ask volume. It is possible to divide actual traded volume depending on whether it was conducted at the bid or at the ask. If it is conducted at the ask you can say it is aggressive buying and passive selling. The buyer is prepared to pay the sellers asking price with a market order.

 

Some people find value in this information and there are a couple of threads discussing it. Probably worth starting with the basics and the Wyckoff forum is as good a place as any for that.

[DbPhoenix 42]

I'd just like to add a wee bit about bid and ask volume. It is possible to divide actual traded volume depending on whether it was conducted at the bid or at the ask. If it is conducted at the ask you can say it is aggressive buying and passive selling. The buyer is prepared to pay the sellers asking price with a market order.

 

Some people find value in this information and there are a couple of threads discussing it. Probably worth starting with the basics and the Wyckoff forum is as good a place as any for that.

 

Since Wyckoff didn't separate volume into bid and ask, a more appropriate location for a discussion of it would be whatever forum or thread thinks this information is valuable. There are, in other words, no Wyckoff resources for it.

 

As to where the transaction takes place, there's not much I can add to my previous post on the subject (post 8). Regardless of the "volume" or of the price points at which it manifests itself, if buying pressure is greater than selling pressure, price will rise. If the opposite, price will fall. If equal or equivalent, price will stay right where it is. That's about as simple as it can be put.

[BlowFish 10]

Post 8 talks about order book and intend. I think you miss my point. Using your example if 5 is bid 10 asked does it not tell you something if the price that is actually negotiated is 10 i.e. the buyers are happy to pay the asking price. What if 10 is bid and 15 asked but sellers are happy to dump at 10?

 

I am not talking about intent here I am talking about whether buyer or sellers are prepared to use market orders to get filled. This is only actual completed orders, real transactions. The advocates of this sort of analysis claim that this is a better gauge of buying and selling pressure (I am not saying that this is necessaries my view) The argument being that the side that is trading aggressively is likely to have a short term effect on price.

[ckait 10]

I personally love volume and use it to guage the intent of those willing to initiate trade. If the voluime of trades consistantly lifting the offer through support areas or vice versa gives one a good idea if to stay in a trade or possibly exit or move a stop or change the management of the trade. I use market delta to monitor this along with the dom Ive been using them for a long time and get a good feel for the activity.

[legout 10]

Hi Everyone,

 

I am new to this stuff so please excuse this dumb question.

 

As I understand.....volume is the number of completed transactions (buy and sell). So can price go from one point to another without volume? To clear my point...lets say there are only 2 participants. I want to buy commodity A. I tell the seller that I'll pay $200. he rejects...and i up my offer to #300. he does not agree and finally i make an offer of $400. So now the price has moved from $200 to $400...without any volume as we did not do any transaction. Is my understanding correct?

 

Thanks

 

I agree with this assessment 100%. Absent sellers in a price range, but willing buyers, price can shoot up quickly with little pressure (volume).

 

legout

[gabroo_munda 10]

Thanks once again for your replies. I have started to understand the volume dynamics but now am confused at another aspect....The price.

 

Why does the price move up and down when everyone only reacts to the current price and no one actually sets it? in simpler words....a futures contract is for $100. Person A sells one contract and person B buys it. Everyone else just notices a volume of 1. This transaction should have no effect on the price. Now how does the price rise or fall from here? Buyers/sellers are sitting in from of their computers and waiting for price to go down/up...but these buyers/sellers dn't tell anyone that they want to buy/sell the future contract. They are just sitting in front of their computers in a reactionary mode. So how does the exchange move the price when buyers/sellers dn't make their intent public until they hit the button? Is there an pit angle to all this where real bidding and asking happens?

[gabroo_munda 10]

In your example, you're offering higher and higher, but he can keep refusing forever. Price is simply the last traded price. Until a transaction takes place, there is no price.

 

 

 

 

There is also the matter of volume as trading activity (which is how Wyckoff looked at it) and volume as "intent", which is essentially what bid and ask "volume" are about. But the trader who trades according to what people intend to do may not make the same decisions as one who trades according to the transactions that people are actually making. I may intend to sell the strawberries in my refrigerator for $100 a pint, but nobody's going to give a damn unless somebody actually meets my price and we conclude a transaction. That then becomes the price.

 

Are you guys suggesting that a price to be displayed on a chart has to have a transaction? If this is the case my initial example of price moving without volume stands to be incorrect.

[ckait 10]

In order for price to move to a new higher or lower price a transaction has to occur higher or lowe than the bid ask sperad. I want to sell at 4 even, the curraet offer i dont get filled becuse someone else decides to sell at 3.50 lowerig the offer no transaction at my level but at another at a higher or lower one and the price moves. It is the agressiveness of those willing to lift or lower their prices which moves the market not that there are more buyers or sellers. I think .

[legout 10]

In your example you ignore the fact that there is a bid and an ask, and which side gets filled. Each price reported always has a buyer and a seller. They agree, so there is a sale. If there is no agreement, the spread between buyers and sellers widens. Instead of 1 tick between, there may be 3 ticks. You can see this happen if you watch the DOM. You can see the orders entered, and how quickly they move. Now, if $100 was the bottom, it means there is no one else willing to sell at that price, but maybe someone has a sell limit order on the exchange at 100.01. Now, if someone sees value, and is AFRAID he will no longer be able to buy at $100.00, and DOES NOT WANT TO MISS THE MOVE, he will buy 'market' or if he's less fearful (greedy) he will put in a limit at 100.01 and hope he is the guy who buys from that seller.

Let's say he buys market. Now the price is $100.01. Now all the shorts get worried, and so they start dumping market orders on the exchange, but no one is willing to sell for 100.00 anymore, or even $100.01, so the price starts heading up, and quick. Hope this helps.

 

legout

[BlowFish 10]

I agree with this assessment 100%. Absent sellers in a price range, but willing buyers, price can shoot up quickly with little pressure (volume).

 

legout

 

Also, if the buyers remove all/most of the floating supply during accumulation price can certainly break to the upside on fairly light volume.

[Guest goodyboo]

Yes, price can move with low volume. Low volume means that less people agree on the price. If you see a double top with the second one having less volume, short it.

[markl67 10]

Thanks once again for your replies. I have started to understand the volume dynamics but now am confused at another aspect....The price.

 

Why does the price move up and down when everyone only reacts to the current price and no one actually sets it? in simpler words....a futures contract is for $100. Person A sells one contract and person B buys it. Everyone else just notices a volume of 1. This transaction should have no effect on the price. Now how does the price rise or fall from here? Buyers/sellers are sitting in from of their computers and waiting for price to go down/up...but these buyers/sellers dn't tell anyone that they want to buy/sell the future contract. They are just sitting in front of their computers in a reactionary mode. So how does the exchange move the price when buyers/sellers dn't make their intent public until they hit the button? Is there an pit angle to all this where real bidding and asking happens?

 

I think this is an excellent question which I've thought about many times. Obviously it has to do with supply and demand. If more demand than supply, the price moves up until supply is available/willing and visa versa.

[Kiwi 16]

All these comments work with some tradables some of the time.

 

Price will lift at times and lift at ask not because of "true" demand but because those who intend to sell large volumes don't want to sell it at current prices or at the current time. This can go on for hours.

 

I fall into that group, partly because of what I trade, that finds that volume "as an indicator" is frequently useless. So is market delta. For any strategy the user needs to test it themselves for the thing they plan to trade and they need to test it in a wide range of situations.

Edited June 27, 2009 by Kiwi

[johnjohn1hew 10]

Price will lift at times and lift at ask not because of "true" demand but because those who intend to sell large volumes don't want to sell it at current prices or at the current time. This can go on for hours.

 

Price can only rise when demand is greater than supply. And in your case demand is greater than supply as the sellers realize that prices are too cheap and so they withdraw and wait for higher prices. If the buyers share this sense, then price will rise as they try to find sellers. Also, we can only call the demand present at any given moment "true" as we have no way of knowing the targets of the sellers (if they even have targets) until we reach them. Hopefully this makes sense.

[DbPhoenix 42]

Are you guys suggesting that a price to be displayed on a chart has to have a transaction? If this is the case my initial example of price moving without volume stands to be incorrect.

 

Yes, price has to have a transaction, and, no, price cannot move with volume, which is a transaction (see post #8).

 

If you've ever bought or sold a house, or placed a classified ad for anything, this should all be clear. If you haven't, visit an auction house sometime. Or sell something on eBay. Many things will become clear to you.

[Kiwi 16]

Price can only rise when demand is greater than supply. And in your case demand is greater than supply as the sellers realize that prices are too cheap and so they withdraw and wait for higher prices. If the buyers share this sense, then price will rise as they try to find sellers. Also, we can only call the demand present at any given moment "true" as we have no way of knowing the targets of the sellers (if they even have targets) until we reach them. Hopefully this makes sense.

 

Yes, your statement does make sense.

 

What I was trying to suggest and I think you have expanded on is that the naive interpretation of supply and demand is dangerous. When prices are pulled up to achieve better short fills it looks like demand ... and in a sense it is - at that precise time. The problem is that the long term actors are simply building positions. Some of my best trades (and virtually the only time I hold for long) come when I start to suspect the activity, profit from it in the short term, and then join the main thrust that comes when the maximum number of fools have joined the short term move.

 

Price can not move with zero volume - because a new last price is not printed until a trade occurs - but at times significant moves are started without a conventional volume signature and interpreting volume is an art best practiced with a view to the next longer term context rather than as a bar by bar science.

 

 

 

 

note: I am certain that db meant that price can not move without volume in the post above.