[volume] Volume Intepretation/Definition

[El Guapo 10]

Interpretation of volume as it pertains to share/contracts traded.

 

How is volume recorded/stamped/represented when shown on a volume histogram at the bottom of a chart, or in the case of CV bars on a chart?

 

Consider a bar of 1000. What does this imply? Is this a count of all buys and sells combined (traded) or as individual buys and sells. Is this 800 buys, and 200 sells or is it 500 buys and 500 sells?

[Avi 8 10]

As long as each volume bar is made the same way, the relative increase or decrease is what is important. The absolute value and how it is constructed has little value in making trading decisions.

[BlowFish 10]

It would represent 1000 contracts/shares/lots bought and sold. For every buyer there must be a seller. That seller may be selling short to open a position or selling an open long position to close.

[El Guapo 10]

It would represent 1000 contracts/shares/lots bought and sold. For every buyer there must be a seller. That seller may be selling short to open a position or selling an open long position to close.

 

Exactly. So why then, when a Price Bar closes Higher than it opens, its often said that; "there were more buyers than sellers"?

[BlowFish 10]

Exactly. So why then, when a Price Bar closes Higher than it opens, its often said that; "there were more buyers than sellers"?

 

In some cases I guess its 'linguistic shorthand' in many, its people who do not understand the auction process.

[rigel 10]

Exactly. So why then, when a Price Bar closes Higher than it opens, its often said that; "there were more buyers than sellers"?[/QUO

 

The higher prices indicate buyers are willing to buy whatever is being offered at higher prices , ie. Demand is greater than supply. Think if you study threads in the Wyckoff forum, all of this will be clarified.

[uexkuell 10]

El Guapo asked:

 

why .. its often said that; "there were more buyers than sellers"?

 

 

One response:

 

its people who do not understand the auction process.

 

No, there is certainly some truth in classifying people as buyers or sellers.

Buying and selling in the markets is not symmetrical.

 

 

Just imagine there is a guy who wants to buy a car.

He gets offered the car for a certain price.

 

If this price is really low he will go "I must get it right away, the guy who is selling it does not know what it's worth!"

Or if it is overpriced and the potential buyer seems to be inclined towards buying the seller thinks "Where will I find another guy who buys the car for this high price again? I must do everything to make him buy now!"

 

It is the same with futures contracts.

If a (well informed) buyer sees a low price he will hurry to get it.

If a (well informed) seller sees a high price he will hurry to get out.

It can be assumed that buyers or sellers of big volume must be well informed because if they were making just a few mistakes they simply wouldn't be there any more.

 

So instead of just buyers vs. sellers it may be better to distinguish between:

- Well informed buyers, less informed buyers

- Well informed sellers, less informed sellers

 

The point is to find a proxy to what well informed buyers or sellers are doing.

 

I doubt that the closing price of a bar is a very valid tool for this (chunking into e.g. 5-min bars is very arbitrary).

[BlowFish 10]

I agree.

 

Though I think you must have mis read my post. It certainly seems to be taken out of context. I said that many people who talk of 'more buyers or sellers' often do so without any understanding, with no knowledge of market microstructure the auction process or even how the exchanges that they trade on operate at the most fundamental level. The sum of there knowledge is often a couple comments from some hucksters website.

 

I did not say (and never have said that i am aware of) that there is no value in studying and classifying buying and selling pressure, order flow, market delta, trade intensity and those types of metrics.

 

Let me put it another way "why do people talk about more buyers than sellers" ...in many cases it's because the haven't a clue what they are talking about. (Of course amongst the learned contributors here that is not so prevalent)