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TinGull

[Volume Based Candles] and how to profit

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I wanted to start a thread dedicated to what brownsfan019 has brought up in another thread. I don't quite understand how to see through volume based charts and candles, so I'd love to hear more about how it can improve ones trading.

 

I was looking at a 2000 contract and 5000 contract based chart and see patterns there, but not sure if I'm looking at things right.

 

I'd love to open this up and hear what brownsfan019 is doing and get some dialog going.

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They're usually called constant volume bars (or candlesticks). They're useful because you can see price and volume as the candlesticks develop without having to look at price and volume separately. High volume would be coming in if a lot of candlesticks formed in a short space of time. For example if you were using 1000V candles then if 5 candles formed in 30 seconds near a support level then this shows big volume (5000 contracts) coming in at that level. It's easier to see in real time than on historical charts.

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Just look very closely at the times the candlesticks formed. Historical charts have this information but you'll need to study them closely. A low volume period would be for example a 1000V candlestick that closed 5 minutes after it opened. A high volume period would be where 5 candlesticks formed in one minute.

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tin - notouch summarized the volume based / share bars charting format very well. Basically in real-time, I can tell just by watching my charts if there's a lot of volume coming thru or not. I don't need tape, a separate volume indicator, or anything. As notouch said, you need to try watching real-time to really see the value.

 

Here's an example while using a candlestick formation - in traditional candlestick analysis a doji symbolizes that the current trend may be coming to an end as the bulls and bears went back and forth and noone won. On a time chart that doji can be saying: 1) the trend is over or 2) the bulls and bears are simply taking a breather.

 

Now, with a volume chart, that doji tells me that XXXX contracts traded in order to produce that, not just traders taking a break. In order for that doji to be produced, the bulls and bears did in fact have a good fight, which is what I want to know and see. I don't want a 'breather', I want a fight.

 

As another trader asked me when I first questionned the share bar method, he asked if I watch my clock when I trade. I replied no. Then it hit me, the time it takes a candle to form is irrelevant. What you want is a candle that is telling you something - either there is action going on or not much is happening right now. I personally want the action/momentum and to participate in that. I don't want to enter a time where volume is low and moves are little. I can't stand trades that take hour(s) to develop. I just don't have the patience.

 

The other big thing for me is that on a time chart with candles during big moves, you aren't going to be able to do much till it's too late. In other words, if the contract moves points over a 3 minute timeframe, that candle is useless. So during big moves, I saw giant candles forming and watched the action take place w/o me. I knew something was going on, yet I had no way to take advantage of it. That same move on a volume based chart can possibly provide me with MANY signals. It's night and day.

 

In the end (for me at least) this is what pushed my trading over the edge. Volume based charts provided me a quick and easy way to visually see what was going on. Rapid candles = rapid volume movements that I want to participate in. Slow candles = low volume that does not help my trades.

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Very nice. I would love to have you do a video presentation sometime on this. It really is an interesting concept that I've never dove into. And candles are your bread and butter, right?

 

Thanks brownsfan, I appreciate the insights.

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And...do you think dojis hold more importance on a volume based chart? Say...after you witness the doji and all the sudden price starts moving fast as hell, you wanna be in on that as quick as possible, yea?

 

:)

 

Thanks again

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Very nice. I would love to have you do a video presentation sometime on this. It really is an interesting concept that I've never dove into. And candles are your bread and butter, right?

 

Thanks brownsfan, I appreciate the insights.

 

Tin - I posted a chart setup of mine here on one of the threads and what I use is simple - volume charts, candles and moving averages. That's it.

 

I guess in essence I am 'reading the tape' as I know many guys here do, but I do it in the form of my chart, not a separate window. When candles are rapidly forming (as notouch's chart showed), I already know there is heavy selling pressure, I don't need a seperate window to show me that (and be a distraction in my opinion).

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Any reversal candles (hammers, dojis, engulfing candles etc) are good indicators with constant volume bars. How quick you move depends on your settings. For scalps you'd use 233V but for a longer term perspective you can use 5000V. I prefer 1000V right now.

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And...do you think dojis hold more importance on a volume based chart? Say...after you witness the doji and all the sudden price starts moving fast as hell, you wanna be in on that as quick as possible, yea?

 

Tin - I think most/all candle patterns hold their water much more on a volume chart vs. a minute chart. The underlying theory of candles is to visually represent the 'fight' between the bulls and the bears. We also know that the more volume being traded at a particular time, the more movements usually happen. So, if you want to see volume and you want a visual representation of the bull/bear fight, there it is on one clean chart.

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now (brow and notouch) you are presenting good arguments.... should I see some charts ? thanks in advance Walter.

 

 

TL is getting wild ¡¡¡ Thanks Soul for making possible this wonderfull familiy ¡¡¡:cool:

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Excellent. Thank you notouch and brown. I did a little looking over some 5kV charts and some 25kV for a longer term view. Interesting things that I'm seeing there. Its weird to not see the volume bars on my chart! HAHA

 

I might just have to start keeping a volume based chart up on my screen to watch from now on. See if it's gonna be something I can benefit from.

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now (brow and notouch) you are presenting good arguments.... should I see some charts ? thanks in advance Walter.

 

Walter - I can post charts, that's not a problem, but as notouch said - you really need to see them in real time. They are just going to look like normal charts unless you pay close attention to the times on the charts. I would suggest opening a chart up with volume bars and compare it in real-time to your time based chart and see how things look.

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Excellent. Thank you notouch and brown. I did a little looking over some 5kV charts and some 25kV for a longer term view. Interesting things that I'm seeing there. Its weird to not see the volume bars on my chart! HAHA

 

I might just have to start keeping a volume based chart up on my screen to watch from now on. See if it's gonna be something I can benefit from.

 

Tin - just like minute charts, volume based charts can be based on how 'quick' you want your charts to move.

 

Try out all different intervals and see what you think. I've read that you should use fib numbers, but I like round numbers. So, I wouldn't worry about setting it at 450 vs. 500 or 1000 vs 1500. Taking a sample of say 500, 2500, 5000, 10,000 could give a nice little sample to look at.

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Here's one I made earlier...

 

This is from a while back. I think it was FOMC which caused the volume.

 

Hi

What format are you using for this chart? I don't seem to be able to view it even though the link [thumbnail] opens in a new window.

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I am enjoying this too! It's like a light bulb just turned on!

 

Q: What are you trading?

A: Shares and Contracts

 

Q: How are they measured, Time or Volume?

A: Volume

 

Q: What kind of chart should you use, Time or Volume?

A: VOLUME!

 

hahahahaha I love it!

 

Now I just need to figure out (1) how to determine what size volume bars to use and (2) how to read candles!

 

I guess the volume bar size that you should use needs to correlate to price movement of the instrument somehow. ie. How much volume causes the price to move. I'm going to start reading about and studying this right now.

 

I think this may be the golden ticket. Thank you for pointing me in this great direction.

 

::EDIT:: Go Browns!!!! :cool:

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Brownsfan,

 

Really enjoying this thread..how did you intially come across volume candles, any educational resources out there?

 

Paul - you know, I first learned about them at elitetrader. That site is mostly garbage, but there are some nuggets if you spend the time reading. I honestly never thought I would get much from a site like that, but one friendly trader brought it to my attention in one of my threads and since then, I just started studying and reading about it.

 

As for books or other stuff, I have not found ANY. Perhaps a mention in a book or something, but nothing really dedicated to it. I have given some thought to writing something up about it down the road.

 

If you are interested in the et thread, here's the link - http://www.elitetrader.com/vb/showthread.php?s=&threadid=80582&highlight=odd

Keep in mind that as normal over there, the thread delves off into childish name calling and such; BUT there is some good info throughout, esp at the beginning.

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I am enjoying this too! It's like a light bulb just turned on!

 

Q: What are you trading?

A: Shares and Contracts

 

Q: How are they measured, Time or Volume?

A: Volume

 

Q: What kind of chart should you use, Time or Volume?

A: VOLUME!

 

hahahahaha I love it!

 

Now I just need to figure out (1) how to determine what size volume bars to use and (2) how to read candles!

 

I guess the volume bar size that you should use needs to correlate to price movement of the instrument somehow. ie. How much volume causes the price to move. I'm going to start reading about and studying this right now.

 

I think this may be the golden ticket. Thank you for pointing me in this great direction.

 

::EDIT:: Go Browns!!!! :cool:

 

Robert - you just went thru what I went thru when I first learned of them. You have to keep an open mind, but WOW they can really improve your trading.

 

As for reading candles, get Steve Nison books. He's the best and is the candle 'godfather'. His site is http://www.candlecharts.com/. When I got into candles, I got ANYTHING from him I could get my hands on. I have most/all his books and DVD's. I highly recommend the DVD's. I am more visual, so a book only did so much. I've gone to one of his live seminars and while it wasn't cheap, it was well worth the cost of admission. He also now has a MarketScan which is pretty slick. He puts out a newsletter too, so make sure to sign up for that. Maybe some of you could go in on the DVD's to share the costs ... if someone has a DVD burner... ;)

 

FYI - I am not a shill for him, just a very happy customer.

 

As for the size to use, it's really up to you. The smaller the number, the quicker things move, so you must be nimble if trading on a smaller number. A smaller number would be under 500 on the YM in my opinion. As I mentioned, don't fret about the actual number. There's not much difference in a YM chart with 300 and with 400 as the setting. It's really a matter of how quick do you want the candles to print - just like a minute chart. Play with some settings and see what you like. The key is to do this in real-time!!! It's easy in hindsight to say that you would have taken a hammer, but what you may not be seeing is that the hammer formed in 30 seconds and you had about .5 seconds to make your decision to go long.

 

Bear in mind guys, when these things are printing, there's no time to be messing around.

You have to act and act quickly.

This is part of the reason I don't spend much time in the chat room. I just can't watch 3 charts, execute my entries timely and chat.

 

One last note - I mentioned this to MrPaul in a PM, but I want to mention here - if you use candles in traditional analysis, be prepared for rough days in trending markets. The candles in traditional analysis are meant to signify the possible end of a trend, which work great in markets that move up and down during the day. In a strong trending day (like the 500 pt day on the dow) you are going to take losses and possibly many of them depending how many times you want to fight that trend. While that is not easy on the psyche, over time, there's money to be made in the market using candlestick analysis.

 

As Nison likes to say... May the candles light your path to succesful trading (or something like that).

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Here's a chart of todays action that I followed along with. It's a 764V chart. Why that? Well..I couldn't remember fib numbers off the top of my head and this is what I came up with. Oddly enough, I see clearer signals from this chart looking back over a couple weeks than I do with one based on a fib number.

 

The blue arrows are pointing to haramis and the red arrow is an engulfment.

 

Simple, straightforward.

volbar.thumb.jpg.6c796ed8690b99d29def0d3fad208fa1.jpg

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BF: I'm a Broncos fan, but that doesn't mean I can't be a fan of yours :)

 

Would love to see some charts.

 

Also have a trading 101 question: What is the difference between a tick chart and a Volume Chart?

 

VSA tells us that volume=activity and thus tick based volume works where actaul contract volume is not offered. Do you believe the same?

 

The Russell doesn't release volume during the day, only tick volume, would you thus not trade that market or just use ticks?

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Here's a chart of todays action that I followed along with. It's a 764V chart. Why that? Well..I couldn't remember fib numbers off the top of my head and this is what I came up with. Oddly enough, I see clearer signals from this chart looking back over a couple weeks than I do with one based on a fib number.

 

The blue arrows are pointing to haramis and the red arrow is an engulfment.

 

Simple, straightforward.

 

One thing I was going to recommend Tin was to post what the volume setting is at to put things into context.

 

Now, to help everyone understand that candles are NOT bulletproof, I attached the same chart of tin and highlighted all candle patterns that I saw. I did not take into account the indicator at the bottom, just pure candlesticks. I did this not to put a damper on this party, but to show that while candles are extremely good at finding ends of trends, they also sometimes can put you into a trade a little soon (early to the party as I like to say). Which then leads to the discussion of where and how do you place your stops if trading off candlesticks... Perhaps another thread discussion altogether.

 

I want to bring your attention to the part I highlighted in purple. The reason is that you see you first get a hammer (long signal), hanging man (short signal) and then another hammer. I bring this up to point out that if you take the first hammer - end of a little downmove and looks like a double or triple bottom (note the first two hammers that failed in my opinion) and right after you enter, you get a candle formation that is opposite of a long trade - a hanging man, and then right after that you get another green hammer and IF you are still in your long, you made some money.

 

One last thing - and Nison says this a lot to - candles do not provide a profit area/target. As you can see in the chart that tin and I posted, you can see patterns that went for points and others that didn't do much. That's the other part of the equation - where and how do you exit?

 

Again, I am not trying to convince you to stop researching this, I simply want to point out how these can work in real time. It's very easy to say that you would take the hammer or engulfing at the bottom of a trend, but there's also other hammers, engulfings, etc. that appeared in that same move. Why would you not take those?

 

Like I mentioned Tin, I think the actual number being used for the volume bar setting is irrelevant. If you want a quick moving chart, use a smaller number; vice versa for a longer term chart.

5aa70dcd2599e_candlestickanalysis.thumb.png.79f1fc6347cca2712cb209e5cc2bf64c.png

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