Open and Free Discussion on Volume

[brownsfan019 17]

Here in the candlestick corner, I enjoy having discussions and let threads run where they may. There are some good threads here that may have started w/ talking about candlesticks and later diverged into something more. And that's great! It's kind of the point of a discussion forum - to have discussions.

 

So this thread will focus (initially at least) on discussing volume and whether or not it is important in your trading work.

 

I think there's 2 simple sides people can take here:

 

1) Volume is important and can play a huge role in their analysis

 

2) Volume is unimportant and/or just another useless indicator

Alright, you probably guessed I am a little biased here, but allow me to explain how I view volume in intraday trading.

 

In a nutshell, volume can be a tricky thing when watching intraday - as you may have seen, there are plenty of games being played on the dom, and that includes FILLED orders. You can see bids/asks being flashed all over, some fill and that may look great on your screen, but the real question about that volume you are watching is - is that true buying or selling volume/pressure/interest/etc OR is that some entity attempting to get you to believe price is moving in some direction OR is that simply an entity exiting a previous trade? There's more reasons, but it's getting late here; you get the idea.

 

In addition, how many times do you see low volume areas for an extended period and then bam, a big surge on volume? Quite a bit on the futures markets. That's all well and good, but do you really want to wait to get into a trade AFTER the real volume has come through? ... Personally, I'm looking to get in BEFORE the real volume comes through and if I am right, I get to ride the wave and hopefully a big one.

 

I personally spent quite a bit of time working w/ volume and seeing if there was something there for me. After many long hours, I concluded that using volume on intraday charts was not for me. That's not to say it can't work, but it did not work for me.

 

In the end, there is no right or wrong answer regarding volume and it's importance in your trading. You do need to find what works for you and I'm here to say that you don't need volume anywhere on your charts whatsoever - no volume based indicators and/or volume itself.

 

And that is my

[monad 10]

Think we mix up issues and then get into controversy.

 

1. Demand and supply are intrinsic to the working of the market. Without buyers and sellers interacting , their activity being reflected in transactions ie. volume, there would be no market. Hence volume is activity or effort if you like to put it that way and the resulting move or lack of it, is the result of that activity. Wyckoff studied this aspect and understood it well enough to read the market to be able to anticipate and trade.

 

2. Now one can choose to study these price/vol dynamics and incorporate them into their trading strategies/tactics. For that trader Volume is important. We are not talking about DOM, time/sales, bid/ask etc here.

 

3. Others and there are many successful traders doing just that, trade without looking at the volume bars on their charts and employ other technical analysis to guide and provide them with aa framework and structure to trade ie. RSI, CCI divergence, fib numbers, gann, elliot , candlestick patterns, moving averages etc.

Infact if you look at Al Brooks latest book, he trades entirely from just one single 5min chart with one moving average and trendlines/channels. I have communicated with him, he has gone through every indicator out there, including volume studies and probably understands the patterns that he outlines in his book well against that background, so he does not need to have the volume bars on the chart. However he does mention volume climax etc and many of the charts in the book do have vol. bars.

So it appears that that if you study price/vol long enough and observe the patterns forming just like looking at RSI divergence and price action long enough, you eventually reach a point where you may not require these on the charts.

 

Anyway the point of all this is Volume is the engine which drives the market.

However whether it is important to trading is a personal choice. Hence as you say there is nothing right or wrong. So really there should be no clashes between those who use it and those who do not,))

[brownsfan019 17]

I agree Monad. And here in a discussion forum, we can discuss - at least in the part of the forum that I moderate. I have no desire to shut down threads when there's a viable discussion there.

 

I like your point that volume drives the market b/c obviously nothing would be going on if there was zero volume. Makes sense.

 

The next question that a trader must make is whether or not that volume that is there is a worthwhile thing to be tracking intraday. Personally, like your mention of Al Brooks, I have not found any use in it.

[Eiger 10]

I agree that volume drives the market.

 

Regarding tracking volume intrady: One thing I like to look at is volume in the first part of the morning (in ES). I compare the first 15 to 30-minutes of the morning volume with similar periods over the last 10 days. It often tells me what kind of day to expect. For example, if volume is significantly higher during these periods compared with the first 15 to 30 minute periods of the past two weeks, it suggests that larger interests may be coming into the market. If the market is trading on one side of the open and gives us a wide range or wide candle body early on (first 15 to 30-minutes), then I am looking for a trend day.

 

On the other hand, if volume is just average or especially below average, I am expecting more of a range-bound market where fading tests of yesterday's highs or lows might come into play. If it is really low, then it's likely an NR day.

 

Usually on the intraday, volume is heaviest in the early hours of the session and in the last hour or two. It tends to be lighter between these two periods (the 'volume smile'). If, though, volume picks up significantly when it is usually ebbing, it can be significant. If we get that in the early part of the afternoon, often it will result in a directional move into the close.

 

These are just a couple of observations, FWIW. I think it is useful to have a 'mental map' of the market, and for me, volume figures pretty promentently in that map, but this is my personal take and others may see it differently. BTW, I am looking at the total NYSE volume during the day for this.

 

Eiger

[Spydertrader 10]

Clearly, a relationship exists between both Price and Volume. Those who disagree simply have yet to see that which exists right in front of their nose. By understanding how all markets exhibit a fractal nature, one can take the first steps required to see the Price / Volume Relationship in action - irrespective of market and / or time frame used to trade.

 

For example, using the ES 5 minute chart, and only making decisions and taking action at the close of a 5 minute bar, the market provides crystal clear information as to where Price sits with respect to the Volume Sequences which require completion. By 'containing' Price within these Volume Sequences, the market reveals its trends across three seperate fractals each day - every day.

 

Volume leads Price.

 

Always.

 

- Spydertrader

[matinthehat 10]

Volume produces price. Volume is a graphic of trader effort. Price is the result of trader effort. No trader, no volume. No volume, no price. No price, nothing.

 

I think that volume is important to the extent that it enables you to make a good guess as to what the motives of the traders are. IMO you can still trade profitably using price and price only, but if you want to give your analysis that extra depth, then volume would be a useful tool.

[forrestang 10]

I don't understand how volume can really be used on an intra-day basis. It seems like a lot find signals based on volume, but I'd venture to guess they could find the same signals based on nothing but price?

 

Seeing as how volume and price occur simultaneously, volume is reflecting what "has happened already," I don't get it?

 

It seems like a good trader that has traded price for years could apply MACD to their trading and it would still be profitable in a similar fashion that some may successfully apply volume?

[euclid 10]

Both price and volume are indications of transactions. Transactions change both volume and price simultaneously. Volume does not "create price" or "lead price". Combining price and volume data simply gives more information about order flow than price data alone. Maybe not more information, since everything is revealed in the price eventually, but more timely information.

[matinthehat 10]

I don't understand how volume can really be used on an intra-day basis. It seems like a lot find signals based on volume, but I'd venture to guess they could find the same signals based on nothing but price?

 

Here is a hypothetical example: Price is making continuous higher highs and higher lows. The up-trend started quick producing a steep trend line, but over time the trend line got less and less steep until price just stopped and went sideways. The bears are not taking price down or they are unable to. The bulls are resting or they are done. Or the bulls and bears are fighting for power. Now check volume. If volume is low at the top then bulls are either resting (unlikely based on previous price action) or they are worn out. But the bears are equally not present and this is beacuse they are waiting for higher prices, or because they are unsure, or because there just are not enough bear traders (new shorts and previous bulls selling their longs and turning into bears). If volume is high, then the bulls and the bears are fighting for dominance. The bears will most likely win based on the length of the up-trend, but the bulls could still win out if they attract a strong following of new bulls. If the bears win out then when price action starts to drift downwards the bulls who entered in at the top would be compelled to sell and possibly become new bears, adding to the supply. Either way, if the up-trend was a lengthy one, then there is a good chance that the bulls will be unable to proceed as the majority of the bulls who wanted to express their opions have already done so.

 

Seeing as how volume and price occur simultaneously, volume is reflecting what "has happened already," I don't get it?

 

Volume and price are reflecting what has happened already. No matter what you see on your charts, it is all past action.

 

It seems like a good trader that has traded price for years could apply MACD to their trading and it would still be profitable in a similar fashion that some may successfully apply volume?

 

To me anyways, trying to guess,based on previous action, where price is most likely to go is just plain fun. I would rather develop my own opinion on the market than have some formula based indicator tell me what is happening. I would rather potentially profit (or lose) from my own analysis than have some indicator "guarantee" me profit (or loss). But, I am here because I am having fun. If I was not having fun, I would not be here.

Edited June 21, 2009 by matinthehat

[matinthehat 10]

Both price and volume are indications of transactions. Transactions change both volume and price simultaneously. Volume does not "create price" or "lead price". Combining price and volume data simply gives more information about order flow than price data alone. Maybe not more information, since everything is revealed in the price eventually, but more timely information.

 

I agree with you that volume does not lead price, but volume does create price. Volume is the effort and price is the result.

[brownsfan019 17]

Clearly, a relationship exists between both Price and Volume. Those who disagree simply have yet to see that which exists right in front of their nose. By understanding how all markets exhibit a fractal nature, one can take the first steps required to see the Price / Volume Relationship in action - irrespective of market and / or time frame used to trade.

 

For example, using the ES 5 minute chart, and only making decisions and taking action at the close of a 5 minute bar, the market provides crystal clear information as to where Price sits with respect to the Volume Sequences which require completion. By 'containing' Price within these Volume Sequences, the market reveals its trends across three seperate fractals each day - every day.

 

Volume leads Price.

 

Always.

 

- Spydertrader

 

Interesting spyder. How about some charts to illustrate the idea being presented here?

[thalestrader 14]

Volume leads Price.

 

Always.

 

That is an assertion.

 

Prove it.

 

Thales

[thalestrader 14]

I agree with you that volume does not lead price, but volume does create price. Volume is the effort and price is the result.

 

 

People create price through agreement.

 

Price is the amount of goods or money given in exchange for something else.

 

Price can rise on falling volume.

 

Price can rise on rising volume.

 

Price can hold steady on falling volume.

 

Price can hold steady on rising volume.

 

Price can fall on falling volume.

 

Price can fall on rising volume.

 

The question for the speculator is simply "is price rising, falling, or holding steady?"

 

Best Wishes,

 

Thales

[tape reader 10]

Humphrey Neil, the author of Tape Reading and Market Tactics, said price represents the value of volume.

[Spydertrader 10]

Interesting spyder. How about some charts to illustrate the idea being presented here?

 

Sure thing. Let's start by taking a look at today's (6-22) S & P 500 E-Mini (The ES) using a five minute chart. Thinking fractally, we want to locate the Volume Sequences which the market displays all day, every day in every market. By describing these Volume Sequences using Volume Color (Black for Up and Red for Down), a trader should expect to see R 2 R 2 B 2 R (for a down trend) and B 2 B 2 R 2 B for an Up Trend. Again, thinking fractally, the market should provide these sequences on each and every trading fractal.

 

An example of a very fast fractal:

 

 

An example of a slightly less fast fractal:

 

 

An example of a slow fractal:

 

 

An example of the slowest fractal:

 

 

 

As you can see, irrespective of the chosen fractal, the market provides the same exact sequences. Combine these fractals, and a trader can 'see' that which must complete.

 

Learning to thoroughly and properly 'contain' Price and Volume in order to more easily see these sequences represents the first step toward profitability.

 

HTH.

 

- Spydertrader

Edited June 23, 2009 by Spydertrader

[euclid 10]

As you can see, irrespective of the chosen fractal, the market provides the same exact sequences. Combine these fractals, and a trader can 'see' that which must complete.

 

Learning to thoroughly and properly 'contain' Price and Volume in order to more easily see these sequences represents the first step toward profitability.

 

HTH.

 

- Spydertrader

 

I can't see any relationship between your lines/labels and the height of the volume bars.

[thalestrader 14]

Learning to thoroughly and properly 'contain' Price and Volume in order to more easily see these sequences represents the first step toward profitability.

 

HTH.

 

- Spydertrader

 

Hi there,

 

I have never learned "to thoroughly and properly 'contain' Price and Volume" in the manner you present here.

 

Also, in the interest of full disclosure: I have learned to become immediately suspicious whenever anyone presents a "method" interpreting any indicator other than price as "the first step to profitability."

 

I would bet, that in most cases, a reader of this thread, trying to do so as you recommend, would experience not "the first step toward profitability" but merely another step down the road of frustration and failure.

 

I have attached a copy of yesterday's ES 5 minute chart to illustrate how I view yesterday's price action. Price is its own indicator, and it is in need of no additional, ancillary, and derivitive confirmation. Nothing other than what presents itself on the chartt throughout the day is necessary to trade profitably. Of course, price action is free.

 

Best Wishes,

 

Thales

[DbPhoenix 42]

 

I have attached a copy of yesterday's ES 5 minute chart to illustrate how I view yesterday's price action. Price is its own indicator, and it is in need of no additional, ancillary, and derivitive confirmation. Nothing other than what presents itself on the chartt throughout the day is necessary to trade profitably. Of course, price action is free.

 

Best Wishes,

 

Thales

 

OTOH, volume can be helpful. Matinthehat understands this stuff as well as anybody and better than most. I suggest that those who are interested look up his old posts.

[Spydertrader 10]

I can't see any relationship between your lines/labels and the height of the volume bars.

 

"Height of Volume Bars" represents only one possible relationship shown on the chart with Respect to the Volume Bars. By first understanding the fractal nature of the market, and then, applying that understanding onto one's chart, the trader can readily see the same sequences repeat - over and over again.

 

- Spydertrader

[Spydertrader 10]

I have attached a copy of yesterday's ES 5 minute chart to illustrate how I view yesterday's price action. Price is its own indicator, and it is in need of no additional, ancillary, and derivitive confirmation. Nothing other than what presents itself on the chartt throughout the day is necessary to trade profitably. Of course, price action is free.

 

First off, no need to apply any sort of 'Gap Rule' to the open. Gaps do not exist. Simply 'mentally' slide the market open to the prior day close, and the market sequences continue where they ended.

 

Second, without Volume, Price does not exist. In other words, unless and until a trade takes place, Price doesn't hit the tape. That trade represents Volume.

 

In addition, the sequences of Volume must complete before the current trend (measured on whatever fractal one desires) reaches completion.

 

Hence, Volume leads Price. Always.

 

- Spydertrader

[Tams 20]

First off, no need to apply any sort of 'Gap Rule' to the open. Gaps do not exist.

Simply 'mentally' slide the market open to the prior day close, and the market sequences continue where they ended...

- Spydertrader

 

 

for the EasyLanguage users, you are in luck...

 

there is no need to 'mentally' slide the market open to the prior day close...

 

you can do it with the sHiFt indicator:

 

http://www.traderslaboratory.com/forums/f46/shifted-5949.html

 

31.11

[matinthehat 10]

In Thales's example i see a weakening down-trend. The first sideways movement (indicated by '1') is either shorts covering and new longs entering (high volume) or a lack of buying and selling interest (low volume). Price then declines out of this first box indicating that there is a lack of support (low volume) or a strong new selling interest (rising volume). Most likely there is a lack of support as more shorts wait to see what will happen before they cover. Also, most likely the downward movement out of the first box was on weak volume as the old shorts would have covered if they saw that there was weak selling interest to the downside, which is most likely what they did as price rose quickly off of those new lows. As price goes into the second sideways movement (indicated by '2') either shorts are covering ((high volume) which is most likely the case as the end of the trading session is nearing + price does not look very promising to the donwside) or there once again is a lack of buying and selling interest ((low volume) which is most unlikely). As price hits the red line we see a decline in price and then another test of this line and a failure to breach. Now this is most likely because of a fight between the short coverings + new bulls and the new shorts (high volume). As the new bulls see how long the bears have been in power and the small amount of time left before the day's close, they would most likely sell out of their positions and allow the bears to take price down as much as they can before they to are forced to cover.

 

Feel free to add and correct. I do not like to analyse charts in this fashion as i am not a strong communicator.

Edited June 23, 2009 by matinthehat

[matinthehat 10]

If you do not understand your chart, then do not do anything based on it. Noone can understand every single little movement in the markets, so there is no point in trying to. When you find something that truly makes sense to you, then you should have the confidence to act on it. If you lack this confidence then you should not trade until you have it. This might be a little off-track, but i believe Brownsfan's meaning of this thread was to spark an insightful discussion, and no intelligence is being gained by everyone stating the same thing over and over again (not to step on any toes).

[thalestrader 14]

First off, no need to apply any sort of 'Gap Rule' to the open. Gaps do not exist. Simply 'mentally' slide the market open to the prior day close, and the market sequences continue where they ended.

 

Gaps are very real, and are themselves a form of impulse that represents at least a tempoary imbalence between buyers and sellers. You can "mentally slide the market" all you want, but doing so chooses to erase an important piece of information that may be used to make trading decisions.

 

 

Second, without Volume, Price does not exist. In other words, unless and until a trade takes place, Price doesn't hit the tape. That trade represents Volume.

 

Without people agreeing to an exchange of something of value for something else of value, there is no price, because there is no exchange. Volume measures units of goods, not people, i.e. not participants. Volume and price are two measures that come out of the observable data of a transaction. Without price having been agreed to, there would be no transaction, hence no volume to measure.

 

In other words, the transaction is primary to both price and volume, and price is primary to volume.

 

You are playing the sophist.

 

In addition, the sequences of Volume must complete before the current trend (measured on whatever fractal one desires) reaches completion.

 

Hence, Volume leads Price. Always.

 

- Spydertrader

 

And again, this last statement has the character of an assertion, not a proof. If you can prove it (without resorting to tautology) please do so.

 

Best Wishes,

 

Thales

[thalestrader 14]

OTOH, volume can be helpful. Matinthehat understands this stuff as well as anybody and better than most. I suggest that those who are interested look up his old posts.

 

I agree that volume can provide useful information at times.

 

I am primarily interested here in the assertion that volume is primary to and somehow trumps price.