Price, (Volume), Support, Resistance, Demand, Supply . . .

[sulong]

Will try and look at those threads. Basically I look at the swings, their angle and duration, and go from there. Anyone else?

erie

Hello Erie,
I think you'er "duration" is a much better description word, than time.
To my thinking, duration equates to emotionally stability.The longer duration of a given move, the more "significant" that move becomes.
It's significant because the markets will become emotionally unstable at some point, and present us with a corrective, and/or, exhaustive move.

 

[jj777]

Hi,

I have used Wyckoff's theory of Volume for a number of years and have developed workable rules in many markets for stock , stock index futures, and Forex. There are numerous types of volume which must be accounted for and this depends on which instument is traded on which exchange. The main volume types are: tick, on balance, and activity. Each have their own advantage. Also, I have used many software packages which act as interfaces for charting software and they each have slightly different rules of data collection, computation, and display.

With regards to Eries question regarding time I will attempt a short response. Remember that the Livermoor formula is based on this principle and becuase of his meticulous record keeping, he was able to develope the complete formula by adding a time element. However, I think the formula is only marginally useful and many developments have come since then.

Time: one always observes liquidity and high volume half hour after and before the close which gives a U shaped distribution. Like the exponential average, you need to develop a system that accounts for this . Find the time of average volume with whatever type of volume you are using. Then apply the theory of Accummulation and Distribution. Back test then forward test and you may observe the action of MMs, Commercials, and large speculators without noise. This is most imporatant in Forex and I belive is a reason why so many fail in this market. I think it is one of the easiest to read because I have defined the time element.

Strength - appears as a result of buying or the absence of selling in relation to momentum. It appears on down bars which is why so many people get screwed when trying to position. They chase the market and position after the strenghth has appeared in an up move.

Weakness - appears as a result of selling or absence of buying in relation to momentum. It appears on up bars again screwing people into positions as above. They chase the market and position after the weakness has appeared in a down move.

I have rules for different markets and use a range of technical indicators to address market conditions. The great thing about reading volume is that it is not a complex moving average of price distribution which the majority of indicators (not all) are. DoM does not give significant edge any more. Therefor to read volume which incudes a summation both of selling and buying is a skill that can be learned.

I will share one of my rules developed initially by R Wyckoff.

Rule 1-Weakness appears indicating a reversal or correction:

Part A) Using 10 minute intraday charts - If average or slightly above average volume appears on 6 bars, and there is diminishing price spread (yet volume remains average or a bit above), there is no demand indicating a potential reversal/correction.

Part B) If the next bar is down followed by 2 or 3 low volume up bars on narrow spreads-sell your house,yacht, wife, dog and short the market with everything you have.

As a caveat - the time element is most important because you have to know when the maket is giving the correct volume. THIS IS THE SKILL TO LEARN and very few do so! I have been hit so many times I carry the scars.....and still make silly mistakes.


Good hunting!


JJ777

 

[Remiraz]

I followed this thread from ET to here. Took me 2 days to finish every post as well as the links to other resources found within both threads here and at ET.

Like they say, one only absorb 30% of what he reads so I'll probably have to re-read this thread over again to get a more accurate picture.

Let me try to summarise what I gathered so far, please correct me if I'm wrong!

---------------------------------------------------------------------------------------------------

How To Become Profitable 101

Basis :

-The market have random movement as well as non-random movement.

-Random movement kills traders. Therefore, to succeed, one has to find and trade non-random movement.

Tradeable Movement :

-Price bouncing off Support/Resistance

-Breakout from Support/Resistance

-Retracements?? (Temporary pullbacks from the prevailing trend, tradeable?)

System :

-Have exact rules for entering and exiting each Sup/Res trades. Know exactly one's Take Profit point and Cut Loss point.

-Have exact rules to reverse trade. Eg, Sup/Res bounce => Breakout

-Add position sizing rules.

Identifying Sup/Res :

-Sup/Res can only be determined after corresponding price movement. Eg. A breakout is only a breakout when it breaks out. ;-)

-Keep to right side of the trend by waiting patiently for the bounce or breakouts instead of anticipating. Eg. A support is not a support until it the price gets supported and rebounce.

-Volume gives a clue to whether the Support/Resistance will be cause price to bounce or fall thru but requires confirmation from the price action itself.

Regarding Volume :

-Volume analysis only works with price confirmation.

Example -

High volume on Long Down Candle in the middle of a downtrend -> Could be selling exhaustion, could be selling strength. Need price confirmation.

Low Volume on Short Down Candle (Doji etc) in the middle of a downtrend -> Could be lack of selling pressure, could be selling pressure resting during consolidation. Need price confirmation.

-Volume + Price analysis can be use to manage and confirm trades.

Example -

High Volume on Short Candle (Doji etc) when price approaches a previous Support Level after bouncing off Resistance -> Could be high buying pressure due to support. Need price confirmation. But once price start to rebounce with strong volume & perhaps corresponding candlestick pattern, time to Long?

A very overlooked but very very useful use of Volume which was never mentioned in any part of this thread here or at ET :

ES trading volume tells us when to stop trading because of the lack of movement during lunch hour! Near lunch hour + volume drop to a trickle = time for lunch!

 

[Market Wizard]

Hi JJ777,

I too use rules developed by R Wycoff. Could you please tell me which software you are currently using to track activity volume, i use VSA but support from them recently has been very poor.

Thanks

 

[sulong]

Let me try to summarise what I gathered so far, please correct me if I'm wrong!
---------------------------------------------------------------------------------------------------
-Sup/Res can only be determined after corresponding price movement. Eg. A breakout is only a breakout when it breaks out. ;-)

Remiraz,
Nice post!
I have a couple of comments.
Potential S/R, is determined by "prior" price action. A breakout, would be determined on a "test" of the prior s/r.
I think thats what you said, but I was not sure.

A very overlooked but very very useful use of Volume which was never mentioned in any part of this thread here or at ET :
ES trading volume tells us when to stop trading because of the lack of movement during lunch hour! Near lunch hour + volume drop to a trickle = time for lunch!

A few pages back, of this thread dealing with "pressure" is directly related to the misconception of needing a specific amount of volume for price movement.

 

[Market Wizard]

Thanks for your reply. I can understand some of your points. I have however been using it to trade for several years now and have found it to be quite good in giving volume signals. Does your programme display relative activity volume? Is it for sale?

MW

 

[jj777]

Sorry to be brief

Yes to first no to second. Trading now.

bye

jj777

 

[Remiraz]

Remiraz,
Nice post!
I have a couple of comments.
Potential S/R, is determined by "prior" price action. A breakout, would be determined on a "test" of the prior s/r.
I think thats what you said, but I was not sure.

Thanks!
Ya, I was trying to put that across in a poorly worded way. Thanks for the correction!

A few pages back, of this thread dealing with "pressure" is directly related to the misconception of needing a specific amount of volume for price movement.

Hmmm yes, I remember that.
But then again, why is there no movement during lunch hour? Which happens to be also a period of almost no volume?

Is it safe to put it this way :

-During lunch hour, the market's EXPECTATION is that there will be no movement as everyone goes out to lunch.
-Price move according to the market's expectation and thus there is no movement.
-Since there is no movement and the market expects no movement, everyone goes for lunch, creating no volume as well!

Thus, it is not no volume that causes no movement, its the other way round!

 

[TheBramble]

Thus, it is not no volume that causes no movement, its the other way round!

I believe this very point has been covered in another thread using the terms 'causative' and 'subjective' volume.

 

[erierambler]

Thanks Sulong and jj777 for you replies on duration (time) .

erie

 

[dbphoenix]

why is there no movement during lunch hour? Which happens to be also a period of almost no volume?

There's otten plenty of movement during the lunch hour. Whether or not the movement is tradeable depends on one's strategy and tactics.

Movement is determined by imbalances in buying and selling pressures, not by volume. Volume is simply a record of the number of shares or contracts or whatever traded. There's no particular reason to characterize it or categorize it, though one is certainly free to do so.

 

[dbphoenix]

And therein lies the rub . Our charts and their price and volume bars allow us to interpret what has happened to supply and demand in the past but only in respect of those who have chosen to enter the auction during the time period we examine. They do not, of themselves, allow us to answer the fundamental question of who is waiting in the wings - whether the demand queue is longer than the supply queue (or vice versa) and the supplementary question of in which queue lurk the big guns.

To gain some clues toward answering these questions we look at the price and volume bars and although we might gain such clues from what they look like, it seems equally important to establish how they emerged. For example, you could have two days where the price action and overall volume looked the same - let's say this was a down during the day, but closing on the highs. If, however, one of those high closes was on high volume and the other on low volume I think you might arrive at different conclusions even though the price and volume bars for the day would look pretty much the same. :?

When you say that one of those closes was on high volume and one on low volume, do you mean volume for the entire day or volume during the movement which resulted in the closing price?

 

[barjon]

dpb

whoops! Yes, I meant the volume during the movement that resulted in the closing price (or in the last few 5 min bars that were making the highs for the day).

jon

 

[dbphoenix]

dpb

whoops! Yes, I meant the volume during the movement that resulted in the closing price (or in the last few 5 min bars that were making the highs for the day).

The lower volume on the second day means only that fewer trades took place. Assuming that you're looking at two hammer-like bars, the close at the highs tells you that buying pressure is greater than selling pressure. The lower volume is telling you that the pressure on both sides is coming from fewer people, or the same number of people making fewer trades.

Perhaps selling pressure is lessening, making it possible for buyers to advance price with less effort. Or perhaps there are regiments of sellers waiting to disembowel buyers if they step over the line represented by the high of the second bar. There's no way of knowing. There is no cosmic "meaning" in a given volume bar or price bar or volume/price bar pair. Or even cluster. Both represent continuums, and how we choose to chop up those continuums is a structure that is a product of our imaginations, not of any particular market basic.

 

[barjon]

dpb

Thanks.

Needn't necessarily be a hammer like bar. Could have a lower gap opening then a fairly steady rise from there during the day - maybe indicating steady buying pressure? Towards the end of the day when the apparently enthusiastic buyers are met by equally enthusiastic sellers (hence the high volume) might you not conclude that there was supply in the background? In the other case, where those apparently enthusiastic buyers are finding it difficult to find sellers towards the end of the day (hence the low volume) might you not conclude that supply was limited and expect a bit further to go before sellers were found?

On an associated point. Since buyers and sellers are primarily influenced by the price at which they are prepared to buy/sell might a horizontal volume bar showing volume at price areas be informative? A bit like Market Profile but volume based.

jon

 

[dbphoenix]

dpb

Thanks.

Needn't necessarily be a hammer like bar. Could have a lower gap opening then a fairly steady rise from there during the day - maybe indicating steady buying pressure? Towards the end of the day when the apparently enthusiastic buyers are met by equally enthusiastic sellers (hence the high volume) might you not conclude that there was supply in the background? In the other case, where those apparently enthusiastic buyers are finding it difficult to find sellers towards the end of the day (hence the low volume) might you not conclude that supply was limited and expect a bit further to go before sellers were found?

On an associated point. Since buyers and sellers are primarily influenced by the price at which they are prepared to buy/sell might a horizontal volume bar showing volume at price areas be informative? A bit like Market Profile but volume based.

jon

As to your first question, the sellers would be in the foreground, not the background, since their trades are affecting the volume. As to the second, it's possible. But unless you can make a setup out of it and test it, there's no way to determine the probability of one outcome over another, so concerning oneself over it would be of questionable value. I certainly wouldn't conclude anything or attempt to predict.

As to the horizontal volume bar, I'm afraid I have no opinion on the subject. I don't use them, but that doesn't mean they're not useful in some way. Perhaps someone else has experience with them.

 

[barjon]

dpb

Thanks again. Should have said "more supply in the background.

I appreciate that any conclusions are always debatable and any attempt at prediction unwise.

jon

 

[dbphoenix]

dpb

Thanks again. Should have said "more supply in the background.

I appreciate that any conclusions are always debatable and any attempt at prediction unwise.

jon

There may be more supply. There may also be more demand. If you worry about what you can't see, you'll drive yourself crazy.

 

[Remiraz]

One question:

For an Index Future like ES, price will follow the S&P500 Index.
How so then if it affected by Supply and Demand?
Would not Supply and Demand adjust according to SPX?
If SPX gaps up, ES would have to gap up regarding of Supply present?

 

[barjon]

There may be more supply. There may also be more demand. If you worry about what you can't see, you'll drive yourself crazy.

mmm, but you can't trade the past can you One way or another we're all using the past to try and guess the future - even if the past for some is only seconds old.