Volume tells all

[Fader]

Originally Posted by dbphoenix
thousands of posts are devoted to the subject of what's going to happen next when very few pay any attention whatsoever to what's happening right in front of them.



I'm sorry, could you repeat that, I wasn't paying attention

 

[Splitlink]

We are not turning this into some kind of Pedant's Corner, are we? Although I may not agree with all that is said by Db, I understood the quote in question. It seems fairly obvious that this thread has run its course.

Split

 

[firewalker99]

not sure if this thread is still going in the right direction, but if anybody's still around to comment on a chart analysis, please have a look at #792 of the "Price, (Volume), Support, Resistance, Demand, Supply . . ." thread, head to it by http://www.trade2win.com/boards/showthread.php?t=11104

I'm refraining myself of reposting this here, but my annotations on the chart are somewhat based on what you call VSA. Anyhow, since of yesterday I've left volume out of my charts because it has put me more on the wrong foot than anything else.

 

[ljyoung]

Yoiks!! With the exception of fw's post a couple of weeks ago, this board seems rather quiet. Nonetheless as requested db, my post has been repositioned.

"Replying to an earlier post by db on another board"

You have me bested by a ratio of 18/5 with respect to trading experience. One of my thoughts when deciding to join the discussion on this board was that people with different backgrounds and professional experience can complement each other when it comes to the development of trading strategies based on sound and testable reasoning. I have a number of questions which I have not seen asked yet (clinical type that I am, I have read all of this thread, the S/R thread and the two ET threads you reference in this thread). If you will then, let me ask one of the questions.

As best I can ascertain there exists a difference of opinion between yourself and the VSA devotees with respect to the composition of "trading activity" - a term which I agee much more accurately describes what is going on, in contrast to the term "volume". VSA theory estimates that about 85% of trading activity is due to professional traders and furthermore defines them as: trading syndicates and other professional operators - not the MF and institutional crews.

There are times in a cycle of accumulation-markup-distribution-markdown where this partitioning does not hold true and as you have pointed out, this would seem to be particularly so when the cycle is in "trend" mode. The herd is thundering along being nudged, when appropriate, by the the people who got the stampede going in the first place. It would be not unreasonable then to suggest that where one is going to see the "cowboys" in action will be at the turns in a cycle and as well the time periods leading up to the turns, viz., the accumulation and distribution phases with their testing and thrusting.
In the A/D phases, the people in the know are ever so quietly doing their thing, being as careful as possible not to tip their hands. Huge amounts of money are involved in algorithmic trading programs which are constructed specifically so that groups with large holdings (either in hand or waiting to be in hand) can execute their trades at the best possible price with the least possible disruption.

Clearly price is the final arbiter and for any trader, accurate price discovery is what making money is all about. It is my feeling that whatever probe I can use to help me find the best price, is a probe I want to use. I really don't care a whit what it is or who discovered or advocates it. The driving reason behind my choice of a probe is simply that I must be able to make money in a non-random way when I use it.

I am asking your opinion on the hypothesis. If you think my question has already been answered, cool. If you don't wish to respond, also cool. If anyone else wishes to respond, equally cool. Conventional TA pretty much sucks. It is time for a change.

ljey

Big gains and losses concentrate into small periods of time - Benoit Mandelbrot

 

[dbphoenix]

My answer may not have been worth waiting for, but your question did revolve around VSA.

Personally, I couldn't care less who's moving price. That's one reason why I'm not among the VSA faithful. This is not to say that VSA does not have much to offer. I just don't care about "why" price is moving, nor do I care who's moving it.

As for turning points, I agree that one is most likely to see "professional" money at work since the crowd is generally responsible for momentum and is never wrong except at turning points. The dynamics of turning points are what they are largely because the crowd is caught by surprise.

As for the turning "process" represented by accumulation and distribution, this is also more likely to be the responsibility of professional money. Retail traders are not likely to be interested in participating in an accumulative base unless they are looking at a long-term investment. And whatever participation retail traders may have in the distribution process is not likely to affect the process given how few shares they own.

But, again, what difference does it make? One is more likely to benefit from focusing on the accumulation and distribution processes than on worrying about who's responsible. Similarly, if price is rising, what difference does it make why it's rising? Either one is long or he isn't. Ditto for the short side.

Db

 

[ljyoung]

My answer may not have been worth waiting for, but your question did revolve around VSA.

Personally, I couldn't care less who's moving price. That's one reason why I'm not among the VSA faithful. This is not to say that VSA does not have much to offer. I just don't care about "why" price is moving, nor do I care who's moving it.

As for turning points, I agree that one is most likely to see "professional" money at work since the crowd is generally responsible for momentum and is never wrong except at turning points. The dynamics of turning points are what they are largely because the crowd is caught by surprise.

As for the turning "process" represented by accumulation and distribution, this is also more likely to be the responsibility of professional money. Retail traders are not likely to be interested in participating in an accumulative base unless they are looking at a long-term investment. And whatever participation retail traders may have in the distribution process is not likely to affect the process given how few shares they own.

But, again, what difference does it make? One is more likely to benefit from focusing on the accumulation and distribution processes than on worrying about who's responsible. Similarly, if price is rising, what difference does it make why it's rising? Either one is long or he isn't. Ditto for the short side.

Db

Thank you for your analysis. It is emminently practical and is no doubt based on some significant experience with reading the tape. I appreciate your point of "who cares why" because in the end price is going to do what price is going to do. More particularly, price is going to go into "trend" mode when the set of conditions are such that this can happen and no one, not even the crew that is trying to set up the move, knows when exactly this will happen. So I have learned something and that's what it's all about.

Parenthetically I must say that the monetization of Mr. William's ideas are a bit crass and from my readings, he would be the first to agree with that. But that is another story for another day.

ljey

 

[dbphoenix]

Thank you for your analysis. It is emminently practical and is no doubt based on some significant experience with reading the tape. I appreciate your point of "who cares why" because in the end price is going to do what price is going to do.

Note, however, that I said "personally". Clearly there are a great many people who care why, and I have no reason to doubt their claims that knowing why and whom is of great benefit to them.

Db

 

[alan5616]

If I can throw my two pennyworth in here, it may be helpful.

In theory, heavier bid volume (traded - not in the DOM) should cause the market to fall and vice versa in respect of ask volume. Unfortunately, this doesn't happen as often as you would expect. Trying to fathom why markets move in the opposite direction, against the volume, is a mind boggling conundrum.

I trade, mainly, the emini Russell (ER2). Yesterday, there was high ask volume yet, everytime 2-3 contracts hit the bid, the market dropped. It got taken down 6-8 pips by small trades. At the end of the time zone, that I was watching, the ask volume exceeded bid by some 200 contracts but, the market went down.

If any of the experienced traders or experts can explain why markets move against volume, I for one, would welcome the education.

rgds

Alan

 

[ljyoung]

If I can throw my two pennyworth in here, it may be helpful.

In theory, heavier bid volume (traded - not in the DOM) should cause the market to fall and vice versa in respect of ask volume. Unfortunately, this doesn't happen as often as you would expect. Trying to fathom why markets move in the opposite direction, against the volume, is a mind boggling conundrum.

I trade, mainly, the emini Russell (ER2). Yesterday, there was high ask volume yet, everytime 2-3 contracts hit the bid, the market dropped. It got taken down 6-8 pips by small trades. At the end of the time zone, that I was watching, the ask volume exceeded bid by some 200 contracts but, the market went down.

If any of the experienced traders or experts can explain why markets move against volume, I for one, would welcome the education.

rgds

Alan

The link below might be of utility:

Trade2Win Boards > The Markets > Derivatives > Futures
Volume at bid & ask

ljey

 

[SOCRATES]

If I can throw my two pennyworth in here, it may be helpful.

In theory, heavier bid volume (traded - not in the DOM) should cause the market to fall and vice versa in respect of ask volume. Unfortunately, this doesn't happen as often as you would expect. Trying to fathom why markets move in the opposite direction, against the volume, is a mind boggling conundrum.

I trade, mainly, the emini Russell (ER2). Yesterday, there was high ask volume yet, everytime 2-3 contracts hit the bid, the market dropped. It got taken down 6-8 pips by small trades. At the end of the time zone, that I was watching, the ask volume exceeded bid by some 200 contracts but, the market went down.

If any of the experienced traders or experts can explain why markets move against volume, I for one, would welcome the education.

rgds

Alan

It is very simple.

Whilst a market remains weak, there are persistent attempts to trap the unwary into high prices. The inducement is to try to hide the weakness and imply strength, which is not the case. These are a series of ambushes that take place in a price waterfall, to the disadvantage of the buyer and to the absolute advantage of the seller, who can then buy it back later at lower prices.

This becomes more clearly manifest if you study the progression of the price and how it is that the marginal addition of further weakness causes prices to be marked down, rapidly.

 

[SIMA]

If I can throw my two pennyworth in here, it may be helpful.
If any of the experienced traders or experts can explain why markets move against volume, I for one, would welcome the education.

rgds

Alan

Get hold of an article at www.traders-mag.com, March 2006, by
Erich Florek, explains in detail various strategies emloyed by the pros. to wrongfoot the traders
as socrates just outlined

 

[frugi]

Presumably weakness can be disguised (and buying encouraged) by the simultaneous placing of large bids while a flurry of late buyers are paying one's ask. The bids give the impression of support for higher prices, but they are then rapidly pulled once the asks have been taken, or when traders start to hit them. Once the bids are pulled that price becomes the ask and the ploy may be repeated until the trap becomes obvious. When it does so the trapped buyers will add fuel for a further down move by selling, into which those whose asks were initially hoovered up may buy.

 

[Charlton]

Both P&V studies are essential for a successful strategy

It is very simple.

Whilst a market remains weak, there are persistent attempts to trap the unwary into high prices. The inducement is to try to hide the weakness and imply strength, which is not the case. These are a series of ambushes that take place in a price waterfall, to the disadvantage of the buyer and to the absolute advantage of the seller, who can then buy it back later at lower prices.

This becomes more clearly manifest if you study the progression of the price and how it is that the marginal addition of further weakness causes prices to be marked down, rapidly.

Exactly - and that is why a study of both volume/trading activity and the effect on price is so useful. This study should not be limited to single bars or just one area of the chart, but needs to examine each area within each timeframe in relation to others.

This provides information on the intentions of the professional traders and the outcomes of their interactions with weaker hands.

Knowing why the market is moving the way it does aids in understanding the direction, extent and probaility of future movements. It better informs one why resistance and support levels are where they are at any particular time and why they move as a result of the actions of the market participants.

This is a more informative basis for a trading strategy than merely watching price action alone in real time and not knowing, or even worse not caring, why price is moving in the way it does.

Charlton

 

[alan5616]

Thanks guys, for the input.

I've got Feb to Aug Traders Mags, except for March!!! i'll try and get the back issue.

Frugi. I was referring, specifically, to trades executed, not icebergs, spoofs etc. My software only displays bid and ask volume actually traded and, accumulates a running total.

 

[ljyoung]

Get hold of an article at www.traders-mag.com, March 2006, by
Erich Florek, explains in detail various strategies emloyed by the pros. to wrongfoot the traders
as socrates just outlined

Not being a subscriber to Traders', I am unable to get a hold of the article you mentioned above. Correct? Am I overlooking something at the site?

ljey

 

[frugi]

Frugi. I was referring, specifically, to trades executed, not icebergs, spoofs etc. My software only displays bid and ask volume actually traded and, accumulates a running total.

Alan what I meant was that price can fall on small bid volume because bids can be pulled before all the ask is taken.
.
If the price is 10000-10001 100 x 80 and 75 asks are bought and 3 bids sold by traders using market orders and then the remaining 97 bids are all pulled the price can become 9999 - 10000 as the bid becomes the ask.

If the same thing happens again, i.e traders buy most of the asks at 10000 but only sell a few lots at 9999, then the remaining bids at 9999 are all pulled, then the next bid at 9998 is hit, price can fall once more on light bid volume and heavy ask volume.

 

[Charlton]

VSA principles

If I can throw my two pennyworth in here, it may be helpful.

In theory, heavier bid volume (traded - not in the DOM) should cause the market to fall and vice versa in respect of ask volume. Unfortunately, this doesn't happen as often as you would expect. Trying to fathom why markets move in the opposite direction, against the volume, is a mind boggling conundrum.

I trade, mainly, the emini Russell (ER2). Yesterday, there was high ask volume yet, everytime 2-3 contracts hit the bid, the market dropped. It got taken down 6-8 pips by small trades. At the end of the time zone, that I was watching, the ask volume exceeded bid by some 200 contracts but, the market went down.

If any of the experienced traders or experts can explain why markets move against volume, I for one, would welcome the education.

rgds

Alan

Socrates has responded to your specific point, but on a more general level Tom Williams book "The undeclared secrets that drive the stock market" - available from the Investor's bookstore I think or retitled "Master the markets" from Tradeguider.com goes into detail.

You can download an official extract from Tradeguider on http://tradeguider.com/dlpdf.aspx
They also have videos, chart of the week etc tackling this subject. I personally don't use their software, but I do use VSA principles.

Charlton

 

[dbphoenix]

This is a more informative basis for a trading strategy than merely watching price action alone in real time and not knowing, or even worse not caring, why price is moving in the way it does.

It's a different basis, but not necessarily a "more informative" one.

Your value judgements aside ("even worse not caring"), price rises or falls. One makes money by exploiting those movements. Knowing why they're made doesn't automatically add to the coffers.

There are many ways to make money, Charlton, and they don't all depend on whether or not one approves of them. As I said earlier, those who accrue benefits from following VSA are welcome to them. For myself, there's no particular advantage.

 

[alan5616]

Frugi. Thanks for clarifying that. Very helpful.

rgds

Alan

 

[Charlton]

It's a different basis, but not necessarily a "more informative" one.
.

It is more informative because it informs you i.e. imparts information about the level of trading activity

Your value judgements aside ("even worse not caring"), price rises or falls. One makes money by exploiting those movements. Knowing why they're made doesn't automatically add to the coffers.

Knowing why something happens informs you about cause and effect. Knowing something about cause and effect enables you to take more appropriate action and to be prepared to take more appropriate action. This is why it adds to the coffers.

There are many ways to make money, Charlton, and they don't all depend on whether or not one approves of them.

Indeed, many examples are given on this board of people making money, for which many do not approve e.g the Secker thread, but I don't see what relevance that has on athread about trading using price and volume

As I said earlier, those who accrue benefits from following VSA are welcome to them. For myself, there's no particular advantage.

Fine, there are threads which discuss other methods. If VSA is not for you, fine. I'm not really interested in whether there is an advantage for you. I am merely responding to postings about the interrelationship between price and volume

Charlton