Importance of volume

How important do you consider volume in trading?

In the past I havnt paid a great amount of attention to volume when trading on tick or 1 minute charts.

Recently though I have been looking at the Dax futures entirely differently to the way I was at the start of this year.

I can now see how volume comes into play at reversals of the most recent trend.

Rather than trading breakouts I am now looking to trade the Dax on reversals, it may have a fancy name like swing trading I'm not sure.

The trick is surely to be able to distinguish between buying or selling on size.


Does anybody else use volume for trading disissions in a similar way on the Dax?


Paul

Blash

Never looked at volume a lot .. to the extent I did it never seemed important enough. IMO it is only important in the widest sense that the instrument you trade is very liquid.

There are a range of factors important to a model or system .. although bound to be an influence, volume IMO is not a priority factor .. nor telling enough in general.

While charts and trends do occupy most people, if I may so suggest, the model/system you build should establish the pre-determinates and probabilities necessary for you to become much more concerned with your profit-taking mechanism (eg targeted profits, stops, etc).

How can traders afford to ignore volume when the only indicator to speak the truth is the VOLUME.. Can MM's fake volume ?
Spikes, VWAP price , VWAP volume, relative volume, Block trades, are for those traders who are serious about trading ..

If you are a day trader then all you need is price, volume , brain and very basic understanding of risk .

Buffet did not get rich by jumping on the trend .. he bought low based on fundamentals and sold high again based on fundamental..

The bench mark for buying low ( technical trading ) is VWAP and not X bar ago..

You know what does VWAP do for you ? It keeps you out of losing trades and that on its own is sufficient to save your money for winning trades..

As we are on the subject of volume i was told by a city professional of 30 years that volume is ok to look at on futurse but not shares as if an institution is buying in large amounts they do not have to disclose the volume to the public for a certain amount of time making it impossible to read on charts at a lter date could someone clarify if this is true or not .
Regards mark

Although I trade US equities exclusively, I can say that volume is one of the most important keys in my trading decisions.

Simply put I believe:

1) Volume dictates price.

2) Volume + urgency= Momentum

3) Momentum is a fuel

4) The best technical setup is worthless in the absence of momentum

VWAP and OBV are excellent tools for determining the validity and life of a trend. I attached a setup that I'm working on for Monday.

TLAB: Entry 7.95, Stop 7.65, Target 9.03 RRR 1:3
10/10 vol = 6,029,311 30DAV=4,149,272

Hope you enjoy!

Marky:

That's my understanding too.

Marky,

Not disclosing volume ? I dont think so. On the Nasdaq all trades are transacted electronically and appear on Time and Sales and this cannot be hidden. What may happen is that an institution order may be spread over a long time period but this idea that they can buy or sell stock and not have it declared until later just isnt true. This is one of the reasons why so many people emphasis price and volume as a basis for trading.


Paul

Marky & Skimbleshanks - ALL SETS volume must be declared that trading day. Almost all institutional/MM trades of more than 8 times NMS where the order is worked to improve on size or volume of trade is"held" under what's commonly known as a "worked principle agreement" ( WPA) this enables the two parties to avoid instantly reporting the trade.

On SEAQ - trades of larger than 6 times NMS are automatically held up for 1 hour, Protected trades are delayed until the MM wants to book it out ( again like a WPA the theory is that these trades are still open for adjustment)

The only real exception to all of the above is a "Block Trade" in this instance on SEAQ stocks a trade of greater than 80 times (might be 75- can't remember!) NMS allows the trade to be held up from trade reporting for 5 working days, OR until 90% of the risk has been unwound..

I think perhaps you guys are getting confused with the rules regarding significant holdings? where an institution who goes through 3% must declare the change to their holdings within a given period.

Not entirely sure how Grey1's theory about VWAP's keeping you out of losing trades works ( an average price stops you losing money? must have missed soemthing here..)

City: looks like you've just agreed about UK volume; there are instances when, for whatever reason, volume reported is 'not-quite-the-actual-sitation'.

Volume held up for an hour, MMs deciding when it suits them to book a trade, and WPAs will significantly alter a situation, meaning that you cannot reliably use volume on UK markets. You can use volume of course, but not 'reliably'. That's my opinion, and that's why I don't now trade UK, but I respect that your opinion will differ.

However, as Trader333 says, on US markets such as Nasdaq the situation is completely different, and therefore a joy to trade using volume as you can use it reliably.

I trade both DAX and ES and have a scan running every minute whcih checks if volume in 1/3 min bars is greater than 1.75 times the average of the past 50 bars. If so it sets a marker on the chart and blows a whistle.

How do I use it?

Well suppose Dax has just rallied 10 points, stalled flat and the volume scan whistles. I immediately look at this bar: if flat I look at the next. The volume is either a big sell or a big buy. If the next bar falls at all, get out of longs at once.. If it rises,uptrend is likely to continue. (some clever people time some contracts so they fall across end of minute candles so you can't tell what they are doing!)

Similarly in downtrends, if very steep and price approaches support and there are a series of high volume bars, then it is likely fall may reverse.. at support. (but not always.)

On trendisng days you can see tops coming as people scale out before the top and a series of volume spikes occur..

I actually have a scan whch attempted to identify tops and bottoms based on volume and price action at upper and lower donchian channels (using them as support/resistance) but since each move is different from another it would give lots of warnings one day which were 100% correct and were 100% wrong the next day .. so I binned them for future research..

I also have a push button volume indicator allowing me to add/remove a volume chart when I want to examine it in detail..

madasafish

looks like your trading in a very similar way to myself.

I too have noticed how the Dax can fall 10-15 points in 3x1m bars on high volume, if the vol is higher than 500 for the last 1min bar and the high of the next bar is broken then I'm looking to go long especially if were at the low of the day.

Its taking a bit of practice but I have had a few trades recently were I've managed to buy at a bottom and sell at the top.

Trading this way I find is low risk as your stop is going to be at the low of the previous bar which is generally no more that 5 points.

There are occasions however were the next few bars do go lower by 2-3 points and then the reversal happens but you cant expect every one to be a winner.

Ah but I trade one minute charts with a 3.5 point stop and a special combined scan which allows you to buy bottoms and sell tops. -- sometimes

My scan is based on Drummond geometry combined with MACD and usually gives a minimum of 5 points before any retracement at all. (often 10-20). It is based on the logic that once a trend starts in 1 minute it continues for a while. Unfortunately it is not perfect and requires visual verification that the geometry is correct (I'm trying to work out how to do so but it's not very easy..as it's based on angles - not Gann).

(Note it is absolutely NO GOOD in very choppy markets as with thses small stops I just get stopped out as 5 point moves either way in successive minutes are often possible)

Trader333 said:

Marky,

Not disclosing volume ? I dont think so. On the Nasdaq all trades are transacted electronically and appear on Time and Sales and this cannot be hidden. What may happen is that an institution order may be spread over a long time period but this idea that they can buy or sell stock and not have it declared until later just isnt true. This is one of the reasons why so many people emphasis price and volume as a basis for trading.


Paul

Click to expand...

Sorry Paul, both you and Marky are right but you are discussing different things.
First of all you. All volume should be declared by the exchanges because
utlimately it is in their interest to do so, and they do, but the bone of contention is
that the rate of release is not even commensurate with price action. Additionallly
some exchanges (commodities) actually declare the volume the following day.

Now you Marky, what happens is that there exists the option to delay the declaration
of volume if it is considered that its immediate announcement may affect price and
size behaviour adversly. It is therefore not mandatory or obligatory but optional.
Therefore what baffles the inexperienced is that volume appears not to make sense
in relation to the progression of price. Therefore skill is required in interpreting
where the volume falls and why.
The other misconception is that volume drives markets.
This is strictly speaking not correct.
Markets are driven by other forces.
Volume is the consequence of those forces succeeding or not.

SOCRATES,

I have recently partly experienced the delay of reported volume even on Time and Sales which did surprise me but it does not appear to be deliberate. If I place an order I can frequently see it go through on the T&S screen pretty much immediately. However I have noticed recently that it can be delayed by up to nearly 10 seconds and that the reported volume is also delayed somewhat. In addition to this you always get a difference between volume reported from different datafeed suppliers.

As I said I dont get the impression that it is deliberate just an inefficiency in the system.


Paul

Hi Guys

I'm currently researching Volume as an indicator.....The US Websites (as always !) appear to be able to provide incredible levels of volume detail and analysis from their side of the pond. (eg MarketVolume.com)

Area there any recommended sites that can provide similar levels of analysis for the Anglo/Euro Indices ?
(Dax / FTSE etc etc )

Regards
NVP

blash said:

How important do you consider volume in trading?

In the past I havnt paid a great amount of attention to volume when trading on tick or 1 minute charts.

Recently though I have been looking at the Dax futures entirely differently to the way I was at the start of this year.

I can now see how volume comes into play at reversals of the most recent trend.

Rather than trading breakouts I am now looking to trade the Dax on reversals, it may have a fancy name like swing trading I'm not sure.

The trick is surely to be able to distinguish between buying or selling on size.


Does anybody else use volume for trading disissions in a similar way on the Dax?


Paul

Click to expand...

What does one expect from volume analysis? Precise timing? General direction or indication of turning points? I have not found volume in any time frame to be sufficiently precise for timing purposes, but abnormal or trending volume can normally be interpreted and is useful as "background" information.

culion said:

What does one expect from volume analysis? Precise timing? General direction or indication of turning points? I have not found volume in any time frame to be sufficiently precise for timing purposes, but abnormal or trending volume can normally be interpreted and is useful as "background" information.

Click to expand...

If you have not as the result of careful observation over a long period of time,
acquired a deep and comprehensive understanding of all the implications
that volume can indicate relative to the behaviour of prices in the instrument
that you specialise in, you ought not to persist in trying to use it untll you do.
You would probably be better off following the news and brokers' advice
or subscribing to newsletters. This is not investment or trading advice,
but common sense. Whereas high levels of intelligence are rare,
and low levels of intelligence are commonplace, common sense itself,
is not that common.

SOCRATES said:

If you have not as the result of careful observation over a long period of time,
acquired a deep and comprehensive understanding of all the implications
that volume can indicate relative to the behaviour of prices in the instrument
that you specialise in, you ought not to persist in trying to use it untll you do.
You would probably be better off following the news and brokers' advice
or subscribing to newsletters. This is not investment or trading advice,
but common sense. Whereas high levels of intelligence are rare,
and low levels of intelligence are commonplace, common sense itself,
is not that common.

Click to expand...

You speak from a mighty perch of the highly intellegent but what exactly are you saying in specific terms with respect to using volume? Can you demonstrate the use of volume for precise timing? Ideally, in a form that we can all backtest. If not, then I think you are kidding yourself if you are saying that you use it in this manner. Are you? If, on the other hand, you are saying that volume provides useful information, or implications as you put it, as background/support to other TA then we are saying the same thing. In which case, it does not appear that you understood what I said, and this humble low intelligence level type offers his sincerest apology for failing to communicate with the high intellegence group.

culion said:

Can you demonstrate the use of volume for precise timing? Ideally, in a form that we can all backtest.

Click to expand...

With respect, that is why you do not understand the importance of volume. You are expecting it to be consistent and to be able to 'backtest' it. With volume you can only forward read it because it is a 'living' thing, and therefore subject to the whims and characteristics of the prevailing market. When you have the ability to read the market's characteristics, you can then relate them directly to the volume characteristics.

That is why I believe it is futile to believe you can ever backtest the use of volume.

And yes, you can use volume for precise timing - when you know how to through your ability to 'see', you will find it is the most remarkable clue of all because it is a leading indicator.

The exception maybe the backtesting of volume peaks, ie 3-5+ times normal volumes might be useful in identifying reversals.