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

[firewalker99]

reposted last chart

I'm unable to login to IB now, so I had to manually change my chart to look b/w.
Hope this is ok (for now).

 

[dbphoenix]

First of all I'd like to thank you for your time making this a very thoroughly and detailed answer. I appreciate the time and effort you put in these to answer it.

I'll try and adjust my charts for future reference in b/w.
Apart from that, I must say your "step-by-step" guide following this chart is very interesting for me. I'll get back to you later about your reply, but study it some more first. Before I try it myself, I'd ask you to review my last chart, if you could analyse and comment on that one, I think it could clear up my head a bit. Next week I will be papertrading as I believe my losses have amounted too much and I'm trying not to be emotional about it - but it's not that easy. Now the only target for me is to get a clear understanding of it and put my theories back to the test although I must note that I've had several profitable days always. Albeit you might argue this was just luck, I hope all my time and effort waren't in vain and I'm going totally the wrong way. If so, please let me know, otherwise I'm looking forward to your comments.

I just read this after having posted my review of your last chart, so maybe we're in tune at some level or other.

As for the papertrading, I suggest you take a breather. For one thing, you are not in a particular productive place emotionally. If you papertrade here, you are likely hoping that the market will make you feel better. But the market has no idea who you are and couldn't care less about you. It just is. Like smallpox. For another thing, since you do not yet have a completely-though-out strategy, much less a consistently profitable one, you would most likely be papertrading what you think and/or feel rather than papertrading your trading plan, and while you might get lucky for a while, that isn't going to get you very far.

I'll say here that you are the first person I've encountered in quite a long while who's put as much thought and effort into price and volume and trading by price, which is the main reason I've taken so much time with this. And I don't yet know just how tangled up you are. But you have the desire and you appear to have the willingness to do the work, so another shot is in order. And if you continue to have difficulties, there are other ways of trading which may be easier on your stomach and your pocketbook.

So take the time. Breath deeply. Relax. Take a long walk. Clear the cobwebs. If you haven't read this thread yet, it's a good start. I suggest you also read the threads below my name, especially on trading plans and journals. And I encourage you again to open up a journal here since this gives you an ongoing record of your progress, with charts, and provides me and others someplace to make comments on your specific situation. You might also find FXCowboy's journal to be of interest since he is interested in much the same things you are.

Db

 

[firewalker99]

A quickie here,

Then, when buyers finally yield and allow price to find equilibrium, or try to, it spends no time at all at the next low but immediately tests yet again that S/R zone. The fact that it breaks back into it is as strong a signal of serious buying interest as you're going to get in this world (if the buying interest weren't there, price wouldn't have risen). Not that I would go long here, but, if I did, I could have a hell of a tight stop.

Db

Exactly what I was thinking, I saw a couple of strong signals that made me place an entry. I was stopped out at breakeven because it only went up a couple of bars... But after that (I included the day chart sorry for the colors) you see it makes a new low for the day after that! It actually goes back lower than the point at the opening... You say you wouldn't go long there, I guess that's were the difference is in a pro and me I have and was stopped out... But am I wrong thinking this could have been a great entry point and chances were that price rallied up?

 

[dbphoenix]

I'm unable to login to IB now, so I had to manually change my chart to look b/w.
Hope this is ok (for now).

Actually, I had black on white in mind rather than white on black, mostly because black on white facilitates printing. Black on white uses a lot less ink, and there are going to be times when you'd prefer to get away from your computer and curl up with your charts and a pencil someplace else. And there are going to be people reading this stuff who want to print out your charts and study them themselves (as scary as it may seem, there are people who've kept notebooks of my stuff since 1997, which is when I first went online).

But you know what you want better than anyone else. If you prefer white on black, so be it.

Db

 

[dbphoenix]

Exactly what I was thinking, I saw a couple of strong signals that made me place an entry. I was stopped out at breakeven because it only went up a couple of bars... But after that (I included the day chart sorry for the colors) you see it makes a new low for the day after that! It actually goes back lower than the point at the opening... You say you wouldn't go long there, I guess that's were the difference is in a pro and me I have and was stopped out... But am I wrong thinking this could have been a great entry point and chances were that price rallied up?

By "next low" I meant 1330. However, getting into where to enter and where to place the stop and so on gets into specifics that are best relegated to a journal. Otherwise, this thread could top 1000 posts in no time at all.

Opening up a journal does not mean that people can't read it or post comments to it. But it does enable those who are interested to follow what you're doing it without having to skip around within a general thread like this one or to jump from thread to thread. A journal, in other words, provides continuity.

Let me know what you want to do. I can also respond via PM.

Db

 

[firewalker99]

I just read this after having posted my review of your last chart, so maybe we're in tune at some level or other.

As for the papertrading, I suggest you take a breather. For one thing, you are not in a particular productive place emotionally. If you papertrade here, you are likely hoping that the market will make you feel better. But the market has no idea who you are and couldn't care less about you. It just is. Like smallpox. For another thing, since you do not yet have a completely-though-out strategy, much less a consistently profitable one, you would most likely be papertrading what you think and/or feel rather than papertrading your trading plan, and while you might get lucky for a while, that isn't going to get you very far.

I'll say here that you are the first person I've encountered in quite a long while who's put as much thought and effort into price and volume and trading by price, which is the main reason I've taken so much time with this. And I don't yet know just how tangled up you are. But you have the desire and you appear to have the willingness to do the work, so another shot is in order. And if you continue to have difficulties, there are other ways of trading which may be easier on your stomach and your pocketbook.

So take the time. Breath deeply. Relax. Take a long walk. Clear the cobwebs. If you haven't read this thread yet, it's a good start. I suggest you also read the threads below my name, especially on trading plans and journals. And I encourage you again to open up a journal here since this gives you an ongoing record of your progress, with charts, and provides me and others someplace to make comments on your specific situation. You might also find FXCowboy's journal to be of interest since he is interested in much the same things you are.

Db

Thanks again, I'll take you up on that suggesting for opening a journal in the next couple of weeks. I'm not going to tell you my life story here, but I'd just like to say that I've made some big mistakes in the past, having had "luck" and believing it would continue like that. Anyway, I'm being much more calm and rational about this in the last month than ever before. I acknowledged my mistakes and taken up a total new way which made me make around 5 trades a day instead of 50. I've already read big parts of the posts on t2w, and will continue to do so.

I've actually made up a checklist that I use for entering a trade, it consists about about a dozen points (some very obvious eg not entering when there's news to be released, others make me nog enter the market on impulse like entering only when you have 3 bars reaching into a possible entry "zone").

What exactly do you mean by "there are other ways of trading which may be easier on your stomach and your pocketbook"? I've actually been convinced by everything I've read that the only thing that drives the market and should be investigated is supply/demand, price/effort... ok most of that part are from your posts on ET, but also a "The Undeclared secrets that drive stock market" from T. Williams. I'm not sure I get where you're going, are you're saying that I should seek other - easier - ways? I don't believe there is an easy way... it's only hard work, discipline based on having and edge imho...

 

[firewalker99]

Actually, I had black on white in mind rather than white on black, mostly because black on white facilitates printing. Black on white uses a lot less ink, and there are going to be times when you'd prefer to get away from your computer and curl up with your charts and a pencil someplace else. And there are going to be people reading this stuff who want to print out your charts and study them themselves (as scary as it may seem, there are people who've kept notebooks of my stuff since 1997, which is when I first went online).

But you know what you want better than anyone else. If you prefer white on black, so be it.

Db

Sorry, meant to have it white/black! My mistake...
it's just that IB prints it out fine, but on screen I prefer black...

 

[firewalker99]

By "next low" I meant 1330. However, getting into where to enter and where to place the stop and so on gets into specifics that are best relegated to a journal. Otherwise, this thread could top 1000 posts in no time at all.

Opening up a journal does not mean that people can't read it or post comments to it. But it does enable those who are interested to follow what you're doing it without having to skip around within a general thread like this one or to jump from thread to thread. A journal, in other words, provides continuity.

Let me know what you want to do. I can also respond via PM.

Db

I'll check out some other journals first, get an idea how far in depth you go.
Don't want to post it if others don't find it relevant or interesting enough to comment on...

 

[dbphoenix]

If shorting there is too aggressive for you, you can wait until your trendline is broken (not drawn in here, but I hope it's obvious)

Db

Here's the chart with the demand lines/trend lines in case they're not so obvious after all.

 

[dbphoenix]

What exactly do you mean by "there are other ways of trading which may be easier on your stomach and your pocketbook"?

Well, there's CANSLIM, the ever-popular Opening Range Breakout, the Ross Hook, the Darvas Box, among many others. Whether one can make any of these "work" or not is a separate issue, but if one just can't get trading by price, that doesn't necessarily bar him from trading entirely.

I'll check out some other journals first, get an idea how far in depth you go.
Don't want to post it if others don't find it relevant or interesting enough to comment on...

First, only one of the people I've worked with has posted a public journal.

Second, I don't say much, and then only when asked or when the journalist is in real trouble; the journals are primarily do-it-yourself, like trading.

Third, don't misinterpret the lack of comment. Dozens or hundreds of people may read your posts and look at your charts (if you float your cursor over your charts, you can see how many "views" there've been) without commenting at all, either because they're just curious or because they don't quite understand it all yet or whatever. In any event, the journal's for you and is posted in order to elicit comment. Even if you want comments now, there will come a time when they aren't so important and you will likely stop posting very often or at all. You might then begin posting to somebody else's.

Db

 

[firewalker99]

Here's the chart with the demand lines/trend lines in case they're not so obvious after all.

Well I thought it was logical to connect to lowest points (your most upper blue line), but I connect the higher high's also. Not to say I'm looking for a parallel line, because I'm not, but these are imo points where the price changed direction quite obviously...

 

[dbphoenix]

Well I thought it was logical to connect to lowest points (your most upper blue line), but I connect the higher high's also. Not to say I'm looking for a parallel line, because I'm not, but these are imo points where the price changed direction quite obviously...

Yes, those are called "supply lines", tho if you've read Wyckoff, you probably know that. Their function is to indicate a potential change in trend, often before the demand line will do so. I think I've explained all of that somewhere, but I don't recall where.

In a downtrend, of course, the supply line becomes the "trendline" and the demand line often provides that early warning. None of which is anything that I'd build a trading method around, but if one has trouble distinguishing between the trees and the forest, they can be helpful.

Db

 

[ljyoung]

A question for Db:

Why is it that a high volume print is so frequently associated with supply? Is this phenomenon best understood in the context of what follows immediately after the print, before the print or both of these? If it is a contextual phenomenon, why does demand not show up more like the inverse of supply? Is it because as TW might say: "Demand is simpy 'no supply'"?
TIA

 

[dbphoenix]

I didn't know that a "high volume print [was] so frequently associated with supply". A "high volume print" is associated with "high" trading activity, i.e., transactions, which, in order to be transactions, must include both something bought and something sold.

But I'm sure you had something more specific in mind. Feel free to post examples.

Db

 

[ljyoung]

I didn't know that a "high volume print [was] so frequently associated with supply". A "high volume print" is associated with "high" trading activity, i.e., transactions, which, in order to be transactions, must include both something bought and something sold.

But I'm sure you had something more specific in mind. Feel free to post examples.

Db

Thank you for your brisk response to my question. One of the problems one can encounter when speaking with someone who knows what they are talking about (in this case that would be you) is stating precisely and clearly what it is that you are trying to ask.

TW (Tom Williams) states that one should always be alert to the possibility of supply when one sees a high volume print (a bar, candle, ... associated with a high volume relative to the volume level that had recently been observed). I take this to mean that when this occurs in an uptrending market, someone may not be buying in but rather selling out. If this is the case then the selling may be a harbinger of more selling. Clearly this happens at a top.

If the MM's are marking up the price after accumulating a wad of stock at a much lower price and have satisfied them selves that there is no appreciable float (otherwise they wouldn't be marking the stock up) then how does one make the judgment that the increase in activity is the expected consequence of small players buying the stock as it moves up in price as opposed to the stock moving up in price because the MM's are marking it up. Is it that the volume associated with the small players is so "small" that it doesn't really make a large addition to the overall volume which is present in a given time frame?

If this is so then what TW says makes sense because when an impressive (large) amount of volume appears on the scene it most assuredly is going to be associated with a larger player who indeed may be selling.

Volume measures are relative things and so there is some level at which volume moves from small to medium to large and this will depend on any number of factors, but again TW says look at the recent intensity to get a feel for this (I understand that some people use volume + 1,2,3 S.D. to try and quantify the amounts).

Which brings me back to what I was trying to say in the earlier post. Is the supply concept strictly related to the selling of marked up stock by small investors occurring when the MM's, in response to what the big players want to do, start marking the stock down (do they mark it down by selling to the bid, i.e., going short?) after they have distributed as much as they can at the topping price to the small investor or is it a combination of, if you will some amount of "sloppy" distribution by the MM's followed by increasingly panicky selling by the small investor (or trader for that matter - speaking from personal past experience) and further short selling (by whomever)?

If the latter is the case, then after the tumultuous ride down, the smart money decides "OK this is a good place to stop" and after checking for the absence of any further supply, start the whole thing over again. The demand aspect really is manifest then as a slow accumulation by the smart money and they do it in such a measured (?small volume) way so as not to drive the price up. If too much volume comes in (again a relative thing) they (the smart money) know it ain't time to move up price and will drive the price back down (?by shorting).

If I knew more exactly what was going on I would not be so windy. It (the market) is to say the least rather complicated, but its workings should be amenable to solution by the application of rational principles of thought based on what we see and influenced by the fact that the smart money with their big accounts and inside info will make every effort to confuse those outside the inner circle.

Hopefully this is a little clearer ,although after reading through it - perhaps it isn't.

TIA

Larry

 

[dbphoenix]

I occasionally get these "Tom Williams" questions but I'm never quite sure what to do with them. I don't know Mr Williams and don't know what his current thinking is on the issues you raise (people do change their thinking, and it can often be a mistake to base one's opinion on what someone thinks by a book they've written, even if it seems "recent"). If you're especially interested in what he thinks, there are several threads in the PV forum that are more specific to Mr Williams and those who are in the know are more likely to be able to help you.

Most of what you have here isn't very important to me. I don't say that to offend you or to imply that what you have here is unimportant in the absolute. I mean only that it doesn't concern me in my trading.

There is "supply" in every transaction, hence in every bar. Or every wave (bars are made up of waves). As for who's involved in those transactions and why they are involved in those transactions, I don't care. I'm concerned only with the movement of price and whether it goes where I "want" it to go. Others may have these concerns. If they do, that's fine for them. Chacun a son gout.

You've spent a lot of time writing your question and it would be a shame to waste all that work. However, given the magic of copy and paste, you can post the same question to the Tom Williams threads with very little extra effort.

For myself, I find volume to be a help. I do not find it to be essential. And I've learned over the past couple of years that it is more a distraction than anything else for quite a few people and no help at all, preventing them in fact from trusting what they see with regard to the movement of price, which is why I place far less emphasis on it than I do price movement.

Therefore, if you're interested in my views on distribution and topping mechanisms -- with or without volume -- bring it down to the application level and provide me with some chart examples. The theoretical has its place, but there's already truckloads of theoretical. The application is more likely to bring about clarity.

If you're not interested, of course, then that's perfectly okay as well

Db

TW (Tom Williams) states that one should always be alert to the possibility of supply when one sees a high volume print (a bar, candle, ... associated with a high volume relative to the volume level that had recently been observed). I take this to mean that when this occurs in an uptrending market, someone may not be buying in but rather selling out. If this is the case then the selling may be a harbinger of more selling. Clearly this happens at a top.

If the MM's are marking up the price after accumulating a wad of stock at a much lower price and have satisfied them selves that there is no appreciable float (otherwise they wouldn't be marking the stock up) then how does one make the judgment that the increase in activity is the expected consequence of small players buying the stock as it moves up in price as opposed to the stock moving up in price because the MM's are marking it up. Is it that the volume associated with the small players is so "small" that it doesn't really make a large addition to the overall volume which is present in a given time frame?

If this is so then what TW says makes sense because when an impressive (large) amount of volume appears on the scene it most assuredly is going to be associated with a larger player who indeed may be selling.

Volume measures are relative things and so there is some level at which volume moves from small to medium to large and this will depend on any number of factors, but again TW says look at the recent intensity to get a feel for this (I understand that some people use volume + 1,2,3 S.D. to try and quantify the amounts).

Which brings me back to what I was trying to say in the earlier post. Is the supply concept strictly related to the selling of marked up stock by small investors occurring when the MM's, in response to what the big players want to do, start marking the stock down (do they mark it down by selling to the bid, i.e., going short?) after they have distributed as much as they can at the topping price to the small investor or is it a combination of, if you will some amount of "sloppy" distribution by the MM's followed by increasingly panicky selling by the small investor (or trader for that matter - speaking from personal past experience) and further short selling (by whomever)?

If the latter is the case, then after the tumultuous ride down, the smart money decides "OK this is a good place to stop" and after checking for the absence of any further supply, start the whole thing over again. The demand aspect really is manifest then as a slow accumulation by the smart money and they do it in such a measured (?small volume) way so as not to drive the price up. If too much volume comes in (again a relative thing) they (the smart money) know it ain't time to move up price and will drive the price back down (?by shorting).

If I knew more exactly what was going on I would not be so windy. It (the market) is to say the least rather complicated, but its workings should be amenable to solution by the application of rational principles of thought based on what we see and influenced by the fact that the smart money with their big accounts and inside info will make every effort to confuse those outside the inner circle.

Hopefully this is a little clearer ,although after reading through it - perhaps it isn't.

TIA

Larry

 

[ljyoung]

Db,
Merci beaucoup. I will bring together a couple of examples of what I'm talking about and would greatly appreciate your take on what is going on. BTW, I do not feel slighted or otherwise impaired by your forthright response. It is, how do you say, tres rafraichissant.
TTFN

 

[Porks]

Db,

Realistically, how long do you think it would take a beginner to go through the steps you suggest to study the principals, tactics, and develop/test a trading plan and aquire the correct mindset.

I know this'll be variable, but from your experience what's the least amount of time someone has picked all this up in ?

It's been said before that it takes 1,000 hours to learn something, maybe 5,000-10,000 to master it.

The reason I ask is because TW often says when analysing the market 'its so obvious to me, its shouting at you, why some people have a problem seeing or picking this stuff up I don't know'

But then he did spend many years in a trading syndicate, by all accounts.


What do you think, could a complete novice pick this up in 6 months spending around 8 hours a day ???

Porks

 

[SIMA]

Db
You are absolutely correct re. volume, it can be distraction unless analysed at the right support/resistance levels and within the context of the previous price action. You have highlighted them in your analysis of one of Firewall's charts, namely a hammer at a support level on high vol and its opposite , shooting star or inverted hammer or a dragonfly whatever one wants to call it,

The other 2 setups you outline reg. retracement on low volume are very much in line with what folks at Tradeguider (Tom Williams) teach as NO DEMAND, to go short , and a Test on low vol (NO SUPPLY) for a long trade, except that your explanation of the NO DEMAND makes a lot more sense in that it is not the vol per se which indicates that but the absence of buying pressure.

 

[dbphoenix]

Db,

Realistically, how long do you think it would take a beginner to go through the steps you suggest to study the principals, tactics, and develop/test a trading plan and aquire the correct mindset.

I know this'll be variable, but from your experience what's the least amount of time someone has picked all this up in ?

It's been said before that it takes 1,000 hours to learn something, maybe 5,000-10,000 to master it.

The reason I ask is because TW often says when analysing the market 'its so obvious to me, its shouting at you, why some people have a problem seeing or picking this stuff up I don't know'

But then he did spend many years in a trading syndicate, by all accounts.


What do you think, could a complete novice pick this up in 6 months spending around 8 hours a day ???

Porks

There are too many variables involved to provide anything approaching a satisfactory answer. If, for example, the novice were literally complete, had nothing to unlearn, had no preconceptions, was able to work without investing his ego in it, was curious, was able to concentrate, was reasonably intelligent, then he would be able to get it far faster than someone who was or had the opposite.

But if you're asking in your heart of hearts how long it would will should ought to take you to "pick this up", that depends on how willing you are to focus on application rather than theory (since you registered more than two years ago, you very likely have had more than enough theory).

Some members tire of my continually encouraging newcomers to this subject to open journals. But there's only so much theory. This thread, for example, has over 700 posts (which is around 650 too many). The "theory" just isn't that complicated. When it seems so, the reason is more likely that whoever is trying to understand it is focusing on something else entirely (so and so says, or I read somewhere that, or I took this seminar once that, or this book said, or but the ADX says). Therefore, the sooner one begins looking at real charts, the sooner he is likely to "get it".

Db