The Price / Volume Relationship

[Spydertrader 10]

One of the demons I have been trying to rid myself of is exiting winning trades too soon.

 

As a trader gains more and more experience (and ultimately, 'sees' more of which the market provides each and every day), one notices 'subtle differences' which signal, "something is different here" (or, what wasn't that?). Noting these subtle differences (and the context in which they developed) allows the trader to transition from an area which once provided confusion into a thought process which results in certainty. In the beinning, a learning trader can only 'see' certainty based on Price. Eventually, the learning trader comes to realize the market provides certainty based on Volume.

 

The Wash Trade Drill also builds confidence in that the trader develops a sense that they can exit at any time without experiencing a significant loss. Since the goal of the Wash Trade Drill is to neither expereince a significant loss or profit, the goal (breaking even on every trade while performing the drill) becomes a far more difficult task than it sounds.

 

However, irrespective of methodology used to trade the markets, every trader battles the twin deamons of fear and Greed. Fortunately, focusing on The Price / Volume Relationship greatly minimizes the opportunity for these deamons to have influence over the decision-making process.

 

Do you have any reason why you prefer OHLC bars to candles?

 

Long ago I used Candlestick Charts. They have their place in terms of information provided by certain Candle Characteristics. However, Candlesticks represents an attribute of The Price Pane on a chart. We want to maintain a focus on another Pane of the chart - The Volume Pane. Anything which steers one's focus to another area of the chart (other than volume) can often retard progress as a new trader attempts to learn.

 

Doesn't seem to me an important difference, but you seem to feel that candles may obscure the message of the markets?

 

I cannot speak to the level of mental gymnastics required to see that which the market provides while using a candlestick chart. However, if attempting to learn a skill by viewing what others do (and seeing their posted charts), I'd think far less translation is required if everyone attempts to play from the same sheet of music.

 

Of course, Your Mileage May Vary.

 

- Spydertrader

[drwarbuck 10]

I hope you will not get tired of my endless questions, but I recognize that you are a wealth of valuable information and I am most appreciative of your willingness to share

 

You stated you did not use price targets, so I am curious as to whether you use stops? My guess is you just let structure guide you, and will exit a trade if and when the information provided refutes the reason you originally entered the trade. Is that correct?

 

As regards volume sequences, are we most concerned with relative volume, meaning the volume of one candle relative to the last, or how volume relates to the previous trend.

 

To highlight what I mean, if you look at the candle today on es at 10:50 est it closed above the prior candle on higher volume, yet the subsequent limited up tape occurred on volume lower then the preceeding down tape. (I would post the chart if I knew how to do that on this site). The move was terminated on the 11:10 candle, and the subsequent down tape while it did have increasing volume on two of the bars, the volume of this downtrend was lower then the volume of the preceeding up trend. So what should I be focused on. The volumes as they relate to each tape as either increasing or decreasing, or the volume as it relates to the preceeding tapes or both?

 

Hope you can understand the question.

[Spydertrader 10]

You stated you did not use price targets, so I am curious as to whether you use stops?.

 

I do not regularly use stops. However, If I place a trade, and decide to run up to the bank, or to the liquor store, I'll place a stop in case I am delayed and the market completes its order of events prior to my return.

 

My guess is you just let structure guide you, and will exit a trade if and when the information provided refutes the reason you originally entered the trade. Is that correct?.

 

Of course. Time is always on your side here. A minimum number of Bars must develop before an order of events can complete. While no 'maximum' number of bars required for an order of events completion exists, by understanding where one sits with respect to the right side of the market, one can simply relax and wait patiently (or respond to questions online ) while the market arrives at the next logical domino required to fall.

 

As regards volume sequences, are we most concerned with relative volume, meaning the volume of one candle relative to the last, or how volume relates to the previous trend. .

 

Since the market exists fractally, all manner of sequences will make themselves known to the trader who has learned to see them. And therein lies the problem for most people - remaining on the same fractal throughout the trading day. Since 10:05 (Eastern Time [06-03-2010] and Close of ES 5 minute Bar), the market has headed lower. It did so slowly at first - appearing almost to struggle as the order of events began to take shape - and then, the market seemed to pick up momentum and move a bit faster as we headed to the noon hour. Again, a trader has the ability to know that all manner of sequences (on several different fractals) have developed across this period of time. While one can often 'see' numerous fractals on any given trading day, the market provides very specific information allowing the trader to annotate their chart by simply focusing on three fractals on any given day. I annotate these fractals by using a skinny line, medium line and thick lined convention. Over time, traders learn to 'filter out' information which does not pertain to them (or more specifically, their trading fractal). Until one arrives at such a point, take in all the information available, and review during debrief.

 

To highlight what I mean, if you look at the candle today on es at 10:50 est it closed above the prior candle on higher volume, yet the subsequent limited up tape occurred on volume lower then the preceeding down tape. (I would post the chart if I knew how to do that on this site). The move was terminated on the 11:10 candle, and the subsequent down tape while it did have increasing volume on two of the bars, the volume of this downtrend was lower then the volume of the preceeding up trend..

 

The market moves in dominant and non-dominant fashion. Focus on what you believe you see, and later (during debrief) learn if your conclusions drawn from specific observations panned out correctly, or do you still have more to learn about a specific area.

 

So what should I be focused on. The volumes as they relate to each tape as either increasing or decreasing, or the volume as it relates to the preceeding tapes or both?.

 

I cannot 'see' through your eyes, but I can 'see' where your brain sits by reading the questions you have asked. You need to take it all in right now. Look for an order of events completion on several fractals throughout the day. Note how the fractal nature of the market exists throughout the trading day, and how each fractal nests within another.

 

Earlier in this thread I delineated how to go about the process of learning to learn. I encourage you to follow those guidelines. Everyone wants to learn it all (all at once), and, as fast as possible. Unfortunately, the human brain doesn't function quite that way.

 

Crawl. Walk. Run. (and then) Fly.

 

Hope you can understand the question.

 

When you respond to a specific post (after clicking 'reply' or 'quote'), scroll down a bit and you'll see a 'manage attachments' button. Click it, and you'll be able to upload any number of items to be included with your post.

 

HTH.

 

- Spydertrader

[drwarbuck 10]

You wrote, "The market moves in dominant and non-dominant fashion. Focus on what you believe you see, and later (during debrief) learn if your conclusions drawn from specific observations panned out correctly, or do you still have more to learn about a specific area."

 

I did not mean to give you the impression that I am new to trading. I may trade like a beginner, but I have been dedicated to watching intraday price behavior for several years on a full time basis.

 

The morning session as you pointed out began slowly and gathered momentum to the downside, bottoming on the highest volume bar of the entire move at 12:25. That terminated that downtrend. Then we had a couple of hours of low volume slowly rising price tape. It appeared that the dominant move today based on both price and volume was down, so I had expected that when volume returned to the market, the direction would be down. Because of this belief, I entered short at the close of the 14:00 candle. I exited immediately when the 14:10 candle closed. By 14:15 it was clear that the dominant volume was to the upside, but was there any way I should have been able to see that earlier. The 13:45 bar was the only clue I see, and in retrospect the bar I sold while it had higher volume then the prior bar, was of less volume then the 13:45 bar.

 

Thanks

[Spydertrader 10]

I did not mean to give you the impression that I am new to trading. I may trade like a beginner, but I have been dedicated to watching intraday price behavior for several years on a full time basis.

 

The questions you have posted indicate your 'new-ness' with respect to The Price / Volume Relationship. This thread contains everything required in order to learn how to learn what information the market provides. With respect to whether or not you were "new to trading" I made no assumptions or judgements.

 

By 14:15 it was clear that the dominant volume was to the upside, but was there any way I should have been able to see that earlier.

 

Most definitely. Each fractal (tape, traverse and channel) contains elements of both dominant and non-dominant movement. These order of events cycle repeatedly. As I indicated earlier, note how nesting of the various fractals develops across a trading day, and you'll find things much easier to see.

 

HTH.

 

- Spydertrader

[cnms2 10]

...

The morning session as you pointed out began slowly and gathered momentum to the downside, bottoming on the highest volume bar of the entire move at 12:25. That terminated that downtrend. Then we had a couple of hours of low volume slowly rising price tape. It appeared that the dominant move today based on both price and volume was down, so I had expected that when volume returned to the market, the direction would be down. Because of this belief, I entered short at the close of the 14:00 candle. I exited immediately when the 14:10 candle closed. By 14:15 it was clear that the dominant volume was to the upside, but was there any way I should have been able to see that earlier. The 13:45 bar was the only clue I see, and in retrospect the bar I sold while it had higher volume then the prior bar, was of less volume then the 13:45 bar.

 

Thanks

It might be interesting to discuss and hear opinions of others on when should've reversed long, what should've prevented a short entry at 1400, and what more information could be extracted at 1345.

[drwarbuck 10]

Yes, that would be most helpful to hear what others saw in this tape, that would have allowed them to know that the dominant volume would be black. The volume bars 13:45 and 13:50 were nearly identical. The 14:00 bar was an outside bar, on volume higher then the preceeding bar. That one got me in erroneously, but at least I had the sense to exit two bars later.

 

But it is what I am not seeing that I would like to know.

 

Is volume dominance best guaged by a series of bars, or paired bars, or individual bars?

 

And finally, if a volume down sequence completes, I assume that the next sequence can also be a down sequence?

 

Finally can someone define an FTT, or refer me to the appropriate area of the thread to read.

 

thanks

[cnms2 10]

...

Finally can someone define an FTT, or refer me to the appropriate area of the thread to read.

 

thanks

google FTT (failure to traverse)

[ptunic 10]

Thursday, June 3, 2010.

[cnms2 10]

Thursday, June 3, 2010.

So, your PFC is that the pt2,3 up are still to come (on the fractal you're annotating) ...

[ptunic 10]

what should've prevented a short entry at 1400

 

From my chart posted above, the reason not to short at 1400 is that we are in an up tape, in a new up Traverse. In this interpretation, we know that we cannot get a new down tape, until the this up-tape has gotten us to break out of the previous down Traverse. The first (dominant) leg of a new Traverse always has to break out of the previous Traverse's RTL, before the next leg can begin.

 

I'm posting a second interpretation, that also would of prevented a short entry at 1400, see attached chart. This scenario I consider more complex, and less likely, but just for food for thought here it is

 

In this scenario, I have modified the pink down Traverse 2 times. First, at 1225 (close of bar) I move the Non-Stationary window, accelerating the Traverse. I marked the accelerated Traverse as orange.

 

The second modification of the pink ( / orange) down Traverse occurs at 1345. Here, I fan (decelerate) the down Traverse. This is because in this interpretation, I see the 1345 bar as having twice the volume of the previous bar, but 1 tick smaller range. This can lead to needing to fan.

 

The importance of fanning is that rather than having a completed down Traverse sequence, it's like it sets us back to Pt 2 moving to pt 3 all over again (or thought of another way, we created a pt 4 and need to create a Pt 5 top). So we know that dominant down movement is coming up ahead, before we can even begin to look for a Signal of Change.

 

So it is 1345, and we know that dominant down movement is coming soon. We see dominant down movement 3 bars later, at 1400, and then get our SoC 2 bars later at 1410 with the ob. (or perhaps if you don't consider 1400 dominant down, then 1410 would possibly count and be the SoC on the same bar).

[rs5 10]

Thursday 3 June 2010...

[cnms2 10]

From my chart posted above, ...

I've just quickly read your post. It seems you overcomplicated your thought process in this case. Also, I'd recommend to start your annotation process with setting pt1,2,3 on 2 bars (cp1), use 2 bar cases (cp2), build volume & price sequences of 4 respectively 3 legs on 3 fractals starting with the first observable fractal. It would probably be a good idea to re-read intently all Spydertrader's posts from this thread, starting from the beginning.

[rs5 10]

what should've prevented a short entry at 1400...

 

On my chart 1300 cst (=1400 est) was a non-dominant move on a subfractal.

[drwarbuck 10]

From my chart posted above, the reason not to short at 1400 is that we are in an up tape, in a new up Traverse. In this interpretation, we know that we cannot get a new down tape, until the this up-tape has gotten us to break out of the previous down Traverse. The first (dominant) leg of a new Traverse always has to break out of the previous Traverse's RTL, before the next leg can begin.

 

Are you saying that after competion of a down traverse, that the market will never or should not take another leg lower. I need to go back and re read the information, but in that event I gather it would be called a FTT and the LTL of the traverse would be moved lower?

 

If what you say is true, then any pullbacks of a new traverse prior to breaking the RTL would be a buys?

[cnms2 10]

Food for thought: differences between 1125 (end of bar) after 1120 peak volume, and 1210 after 1205 peak volume?

 

Also: 1150 (3rd bar of the lateral) how is the lateral expected to BO?

[nkhoi 10]

Hi Nkhoi,

 

How do I deal with the weekdays which are holidays ? Is there a way to remove them as they do appear as regular trading days ?

 

tnx

you can limit the days to display or just ignore it it will be over soon enough.

[rs5 10]

Friday 4 June 2010...

[rs5 10]

Food for thought: differences between 1125 (end of bar) after 1120 peak volume, and 1210 after 1205 peak volume?

 

Increased volume at 1205/1210 over volume at 1120/1125 as price break down a bigger fractal RTL at 1205/1210. Also see attached snippet.

 

Also: 1150 (3rd bar of the lateral) how is the lateral expected to BO?

 

Sym lateral in r2r segment expected to breakout in direction of dominant move, which it did. Note that the volume increases across this lateral from bar 1 to lateral exit.

 

Are there any other insights that you see?

Edited June 4, 2010 by rs5

[drwarbuck 10]

Could someone please tell me how to stop the email notification for each post made on this thread?

 

thanks

[ptunic 10]

I've just quickly read your post. It seems you overcomplicated your thought process in this case. Also, I'd recommend to start your annotation process with setting pt1,2,3 on 2 bars (cp1), use 2 bar cases (cp2), build volume & price sequences of 4 respectively 3 legs on 3 fractals starting with the first observable fractal. It would probably be a good idea to re-read intently all Spydertrader's posts from this thread, starting from the beginning.

 

Thx for the advice. It has been a while since I've gone back to the beginning, I think you are right, could be helpful! In particular I haven't grasped how the fractals that are smaller than tapes (sub-fractals: 2 bar cases versus BBT's etc) fit in together.

[emac 10]

It might be interesting to discuss and hear opinions of others on when should've reversed long, what should've prevented a short entry at 1400, and what more information could be extracted at 1345.

 

In my view, 1335 up bar began as a move to pt 3 of tape down that started at 1310. 1340 began as move down fr pt 3 but the bar closed up (ibgs). 1345 vol increased showing a b2b breakout of the short started from 1310. This would create pt 2 of a long fractal of which the short which began maybe just 1350 is part of the move from pt 2 to pt 3 which when the pattern completes, a move up (WMCN) would continue .

 

My chart on that day attached as far as I can see it. Apologies for the messiness .

[emac 10]

Since the market exists fractally, all manner of sequences will make themselves known to the trader who has learned to see them. And therein lies the problem for most people - remaining on the same fractal throughout the trading day. Since 10:05 (Eastern Time [06-03-2010] and Close of ES 5 minute Bar), the market has headed lower. It did so slowly at first - appearing almost to struggle as the order of events began to take shape - and then, the market seemed to pick up momentum and move a bit faster as we headed to the noon hour. Again, a trader has the ability to know that all manner of sequences (on several different fractals) have developed across this period of time. While one can often 'see' numerous fractals on any given trading day, the market provides very specific information allowing the trader to annotate their chart by simply focusing on three fractals on any given day.

.....

Earlier in this thread I delineated how to go about the process of learning to learn. I encourage you to follow those guidelines. Everyone wants to learn it all (all at once), and, as fast as possible. Unfortunately, the human brain doesn't function quite that way.

 

Crawl. Walk. Run. (and then) Fly.

 

HTH.

 

- Spydertrader

 

Spyder,

 

I think you hit the nail on the head with your comment. I am one of them learners just started a short while ago learning PVT. The challenge in front of me amongst others is remaining in the same fractal and not jump fractals throughout the day.

 

As I chance upon this thread rather late, could you please point me to the part where you pointed out the process of learning how to learn plus the drill on FTT and wash trades if you will.

 

Thank you for sharing.

[nkhoi 10]

Again, thanks for the reply.

Your answer is very interesting to me. I met a fellow in a trading room about a year ago, who seemed to be ahead of my curve, and that gentlemen was kind enough to lend some direction.

 

his name?

 

..

But it is what I am not seeing that I would like to know.

 

Is volume dominance best guaged by a series of bars, or paired bars, or individual bars?

 

vol dom starts with b2b or r2r, the smaller number of bars to create b2b, r2r the smaller channel you are looking at.

[oddiduro111 10]

Hi guys, fellow PVT/SCT trader, class of 2003. I see that all of you are working hard on learning to read the markets, stay with it. I only read to about page 50, I hope that all of you have gone on to realize the significance of knowing about laterals. Stay with it!

 

Best Regards,

Oddi