risk of sounding stupid...

[SafSaf]

Hi guys, first post, just discovered this forum.

please see screenshot of chart below. i'm having awful trouble distinguishing between bid and ask. i presumed bid is buy/er and ask is sell/er but on various website, including a google search, i see comments like the screen shot attached.

let me explain my confusion; look at the candles screenshot. big red candle. beneath the candle are a few studies. the one with the numbers is called 'ask volume bid volume difference and as you can see it shows -165 which makes sense seeing as it's representing a red candle.

below that is a 'bid volume vs ask volume' oscilator more selling volume and the blue line (moving average) face down. again logical.

and the bottom study, ask/bid volume difference bars' also shows a healthy red candle.

now look just below the main chart where there is a box that states the total volume for that red bar, a bid volume and an ask volume. why is the bid volume, which would be the buying volume higher than the ask volume. surely it should have been the other wayt round right?

i know one answer could be that there was a failed attempt by the buyers but this contradiction happens so often on my charts and coupled with the other screen shot statement it becomes quite confusing.

tia

 

[timsk]

Hi SafSaf,
Here's a definition of bid and offer for you:

Bid
The bid price is the price at which you can SELL a given instrument at a given point in time, i.e. the bid is a price at which a buyer is willing to buy an instrument from you. This is nearly always less than the offer or ask price.

Offer
The offer price (also referred to as the 'ask' price) is the price at which one can PURCHASE a given size of an instrument at any moment. It is nearly always greater than the bid price.

The difference between the two prices is the spread and it's where the brokers and market makers make their money. Well, some of it at least! Market makers are individuals or financial institutions who literally ‘make a market’ by maintaining a bid and ask price in a given instrument by always being available to buy or sell at publicly quoted prices. The role of the market maker is to maintain liquidity within an instrument, typically by buying when there is an abundance of sell orders, and selling when there is an abundance of buy orders. An example of a market maker is a spread betting firm, so that when you buy an instrument, you do so from them; i.e. they are the counter party to the trade and sell the instrument to you.

". . . now look just below the main chart where there is a box that states the total volume for that red bar, a bid volume and an ask volume. why is the bid volume, which would be the buying volume higher than the ask volume. surely it should have been the other wayt round right? . . ."
No - you've got it arse about face. The bid volume represents sellers and the ask volume represents buyers - so the screenshot comment by hgreenblatt is correct.

Hope that helps.
Tim.

 

[SafSaf]

thanks tim, kind of you to respond. i've just drawn myself a visual which i've attached. is my interpretation correct?

 

[timsk]

Hi SafSaf,
Nice graphic!

As a rule of thumb, broadly speaking, I think what you've drawn is correct. However, it is possible for ask volume to be higher on falling prices and vice versa. For example, where momentum is strong, rising prices might lead to even more buyers jumping in, increasing bid volume rather than ask volume, as people expect prices to continue climbing. Conversely, in a falling market, sellers may be more eager to exit, adding to ask volume as they compete to sell. Secondly, major news can trigger panic buying or selling, thereby skewing volumes: positive news might increase both bid and ask volumes, as buyers want to enter and holders set higher asking prices. Thirdly, in thinly traded stocks or illiquid markets, bid and ask volumes can be sparse and erratic, not necessarily reflecting price direction.

I should add that this is not my area of expertise and I've always found volume a very tricky tool to use - so don't assume what I've written is 100% correct! In this day and age when a massive amount of trading is automated around algorithms, interpreting volume is the devil's own job, IMO. A volume based tool that I find is much easier to understand and use is Volume Profile. The link is to a post of mine with a bunch of YouTube videos which will give you a good idea if it's something that might be of interest to you.
Tim.

 

[SafSaf]

thanks again tim, i'm by no means a stupid person but this simple thing has really mind fcked me so in the sprit of sharing, for anyone else who may be as confused as i, i have also put together this graphic. feel free to change it for the benefit of others in my position. thankfully you have helped me understand, and this is my interpretation.