Volume tells all

[firewalker99]

FW

It's not easy to take volume into account as well. When you combine price and volume analysis you clearly increase the number of combinations of analytical "patterns" (please note patterns is used loosely). In additon the combinations have to (have to here meaning in the context of what I am talking about rather than infering that there is any obligation for the reader to do this) be looked at in the context of other parts of the chart.

Clearly you have made a success without using volume and without using all the attributes of a bar. Later you may or may not decide to examine these - that is up to you. In a thread entitled Price and Volume if I discuss what is "required" then it is in the context of that thread. This is no different to me posting in an indicators thread (I do not use them myself) and saying that this is the way that the RSI should be used. It doesn't mean that you and I must use them. It merely means that if you happen to choose to use RSI then this is the way to use it.

I will end this message with one final thought - why is volume data difficult to obtain in some situations. Why do you have to pay for Level II, when level 1 is generally free. There are certain datasets that professionals prefer you do not see. Why ?

Charlton

I agree that volume probably holds a key to unlocking the predictive potential of your strategy. And I hope to incorporate it too one time, as I'm already learning to read it more efficiently by knowing WHEN and WHERE to read it, instead of looking at too many separate single bars for a clue.

I'm sure there are several signals that can be confirmed by the way a bar has formed, like a strong hammer on support can be a buy sign for some people. And all of this might come into play when I'm at a further stage of refining and going through some retesting... but as you're aware of where I came from, I don't want to rush into things. I'm reasonable happy with what I have now and confident in it. It's far from perfect, and those who manage to take in account all the signals a market gives in any which way that is will surely benefit of it.

Perhaps in the near future I will frequent this thread more often and haunt you with questions

 

[firewalker99]

Notice I said IF you trade the way he does..I do..many do. That is: The way I trade I MUST have bar charts. I was not saying one HAS to have bar charts to trade. Actually the only thing you have to have is money, account, tel, and a broker. You don't HAVE to have bar charts or line charts...candles..However, if you trade the way I do and the way i think Char trades then you must have bar charts. That is all I am saying. Actually I was messing with db but he didn't go for it.

I know pttrader, every style is different and everyone needs to use with he or she is best at. I had a bad start at trading, by reading up too many things and mixing them all together. For sure, there was some truth in it, but you only need what you need and I believed I needed to analyze each bar, every volume, looking for signals everywhere,... Actually I think my learning process is far from finished but has entered a new stage. I still find all this incredible fascinating.

 

[Charlton]

I agree that volume probably holds a key to unlocking the predictive potential of your strategy. And I hope to incorporate it too one time, as I'm already learning to read it more efficiently by knowing WHEN and WHERE to read it, instead of looking at too many separate single bars for a clue.

I'm sure there are several signals that can be confirmed by the way a bar has formed, like a strong hammer on support can be a buy sign for some people. And all of this might come into play when I'm at a further stage of refining and going through some retesting... but as you're aware of where I came from, I don't want to rush into things. I'm reasonable happy with what I have now and confident in it. It's far from perfect, and those who manage to take in account all the signals a market gives in any which way that is will surely benefit of it.

Perhaps in the near future I will frequent this thread more often and haunt you with questions

FW
Keep doing what you are doing.

You have a very healthy approach to all this and, as I said before, newbies would do well to read through your journal and follow your development, which I am sure will go from stength to strength.

Have a good night

Charlton

 

[ljyoung]

FW


I will end this message with one final thought - why is volume data difficult to obtain in some situations. Why do you have to pay for Level II, when level 1 is generally free. There are certain datasets that professionals prefer you do not see. Why ?

Charlton

I couldn't agree with you more , Charlton, and my answer to your question is because they want to preserve their edge by confusing as many people as possible. Someone on a previous post said that the only group which has really accurate data are the banks. There are probably a few more groups who share this bounty but the market proletariat isn't one of them.

After my volume epiphany of a few posts ago, I went looking for some answers and FWIW, I have interpreted what the people at SIerra Charts say the "data fidelity" component of the market feed for suppliers that interface with their charting program is, as being: DTN > myTrack > IB. So how does one know if in fact this is correct unless one pays the extra money and goes with the superior provider? The answer must be you don't know until you find out for yourself. If you keep all else constant and observe that you are making more money using the new feed then perhaps that is a point in favour of your hypothesis that provider A supplies better data than supplier B. On the other hand if you don't make more money it could possibly be that the protcols that you worked so hard to develop using the crappy feed are bogus and you thus have to start all over again. So whenever I hear someone talking about the right way to do this and that, I now even more than before am compelled to ask "Do you know how good your data is?" It truly sucks that there are no controls or standards for market data.

I have little doubt that this is why some traders don't use volume at all and just focus on price. There are many ways to use price ranging from the wavy-gravy stuff to the price mechanics of someone like Sperandeo. His approach is pure empiricism with no hand waving and jabbering about the profound theory behind his approach. The stock market is so far removed from anything that even approaches science that to try and deal with it using scientific principles is fatuous at best. The central tenet of the scientific method is an unbiased search for truth and the only truth in the stock market is that there is no truth and this is particularly the case when it comes to the data collectors "providing data" for the non-professional to use in making their investment or trading decisions.

So you do the best with what you have become comfortable with (in the sense that you are making money with your method) and screw those who say that what you are doing is wrong. If you are a true trader you'll find that out for yourself or else you'll go broke.

Below are a couple of quotes, the first from Wyckoff, the second from Graifer and Schumacher:

Wyckoff: From his "S&I Indices" Article
These alternating up and down movesare caused by the opposing forces of Supply
and Demand . A rise or up move takes placewhen the force of demand (desire to buy)
is greater than the force of supply (desireto sell) . And a decline or down move comes
when the reverse is true.
Each of these forces is made up of two different influences, namely an investment
and a speculative influence . The investment influence is produced
by the buying and selling of all types of people who operate in the market with the
idea of holding their positions for what is commonly called "the long pull ."
The speculative influence is caused by the purchasing and selling of all those who
trade with the hope of making profits out of the swings of prices, big or little .
Investors buy or sell quietly and slowly(except at infrequent intervals when they
may become panicky) . Consequently, investment operations tend to exert an enduring
influence on the trend of prices and so are instrumental in producing the major
bull and bear movements . Speculators, on the other hand buy and sell quickly. They shift from one side of the market to the other frequently. 'Thus the speculators create the minor fluctuations and give the market breadth and activity.

Graif and Schumacher: From their book "Techniques of Tape Reading" p.95
As we defined the role of the smart money and the public in the price movement, we must now learn to distinguish their action. The major difference that allows us to distinguish the action of smart money from that of the public is the character of the price movement and volume changes. As a rule, smart money action can be seen as a slow, gradual price movement with steady or slowly increasing volume. The public's action is characterized by hysterical and parabolic price spikes, almost vertical movement with a sharp volume increase.

While one can construct a scenario whereby these two statements are not contradictory, it is a tortured construction but pales in comparison to the torture some recent entrant into the world of financial speculation experiences when he or she tries to decipher what these people are actually saying. I have constructed a tortured scenario but having subjected you all to the torture of reading this, I will save it for another day. And remember, " ... no one expects the
Spanish Inquisition".

Ciao.

lj

 

[Charlton]

Excellent analysis or market issues

they want to preserve their edge by confusing as many people as possible. .

So whenever I hear someone talking about the right way to do this and that, I now even more than before am compelled to ask "Do you know how good your data is?" It truly sucks that there are no controls or standards for market data.

I have little doubt that this is why some traders don't use volume at all and just focus on price. .

The central tenet of the scientific method is an unbiased search for truth and the only truth in the stock market is that there is no truth and this is particularly the case when it comes to the data collectors "providing data" for the non-professional to use in making their investment or trading decisions

So you do the best with what you have become comfortable with (in the sense that you are making money with your method) and screw those who say that what you are doing is wrong. If you are a true trader you'll find that out for yourself or else you'll go broke.

lj
You have made some excellent points here about the quality of market data and your consideration of the appropriateness of the "scientific method", especially in the light of inaccurate data.

The last quote from you that I pasted above really sums it up. On this board we can only suggest to others ways of looking at the market that have worked for us and all my posts are created in that vein. There is no absolute truth in that sense.

Charlton

 

[Thatchman]

WD Gann was the master of the ticker tape...

 

[dcraig1]

VSA Trader,

When I read your original post, a few weeks ago, I thought that it was nonsense, having seen markets move in the opposite direction to the bid or ask volume traded.

This point of view evolved based on volumes that were reported via my data feed. I have an account with IB, which enables me to receive real time data for, effectively, nothing. I have never doubted their ability to accurately report, not only price but, volume of contracts traded at that price and specified time. I accepted, without question, that all the data they transmitted was accurate.

Last Friday, I had reason to speak with a contact who receives data from two of the major real time data feed companies. He uses volume as an integral part of his trading set ups. I was shocked to learn that, although their reported volumes were almost identical, my IB volume was totally out of sync with them. We compared our data over several 5 minute bars. On one bar, in particular, there were 800+ contracts traded but, according to IB, there were 6,500. It looks as though they are accumulating their volumes and then pushing them through in chunks.

From today, I will start a week's free trial with one of the independent data vendors as I would like to incorporate volume into the process of making my day trading decisions.

My apologies for rubbishing your earlier post.

rgds

Alan

I don't know what market you're referring to, but if it's CME then apparently CME has started including spread trades in reported volume which results in large volume spikes that are clearly not going through the normal order book. IB say their feed is correct because they are simply passing on what the exchange provides which in a way is a valid point of view. I think IB is looking into the issue and may introduce something to filter this out.

A similiar problem also exists on DAX (and has done for a long time) in the week or so before contract expiry.

 

[dcraig1]

FW
I will end this message with one final thought - why is volume data difficult to obtain in some situations. Why do you have to pay for Level II, when level 1 is generally free. There are certain datasets that professionals prefer you do not see. Why ?

Charlton

Actually, I think that professionals couln't care less. Exchanges charge for level 2 'because they can' - it's part of their revenue. A second reason could well be to deter data subscriptions from those who have no intention of placing orders on the exchange placing load on their computing and networking infrastructure.

There are also some notable cases where depth of market is free - SGXNK, HSI, SPI, K200.

 

[dbphoenix]

Below are a couple of quotes, the first from Wyckoff, the second from Graifer and Schumacher:

Wyckoff: From his "S&I Indices" Article
These alternating up and down movesare caused by the opposing forces of Supply and Demand . A rise or up move takes place when the force of demand (desire to buy) is greater than the force of supply (desireto sell) . And a decline or down move comes
when the reverse is true. Each of these forces is made up of two different influences, namely an investment and a speculative influence . The investment influence is produced by the buying and selling of all types of people who operate in the market with the idea of holding their positions for what is commonly called "the long pull."
The speculative influence is caused by the purchasing and selling of all those who trade with the hope of making profits out of the swings of prices, big or little .

Investors buy or sell quietly and slowly(except at infrequent intervals when they may become panicky). Consequently, investment operations tend to exert an enduring influence on the trend of prices and so are instrumental in producing the major bull and bear movements . Speculators, on the other hand buy and sell quickly. They shift from one side of the market to the other frequently. 'Thus the speculators create the minor fluctuations and give the market breadth and activity.

Graif and Schumacher: From their book "Techniques of Tape Reading" p.95

As we defined the role of the smart money and the public in the price movement, we must now learn to distinguish their action. The major difference that allows us to distinguish the action of smart money from that of the public is the character of the price movement and volume changes. As a rule, smart money action can be seen as a slow, gradual price movement with steady or slowly increasing volume. The public's action is characterized by hysterical and parabolic price spikes, almost vertical movement with a sharp volume increase.

While one can construct a scenario whereby these two statements are not contradictory, it is a tortured construction . . .

lj

So what's the contradiction?

"Investors buy or sell quietly and slowly(except at infrequent intervals when they may become panicky)."

"As a rule, smart money action can be seen as a slow, gradual price movement with steady or slowly increasing volume."

Quietly, slowly, gradually. That's how "professional (smart)" money works.

 

[ljyoung]

So what's the contradiction?

"Investors buy or sell quietly and slowly(except at infrequent intervals when they may become panicky)."

"As a rule, smart money action can be seen as a slow, gradual price movement with steady or slowly increasing volume."

Quietly, slowly, gradually. That's how "professional (smart)" money works.

The terms of reference are Wyckoff's and G&S's quotes in my original post.

Are the actions of Wyckoff''s "investors" to be equated with those of G&S's "smart money" generally speaking or is it just when they are buying and selling quietly? Or is it that the "smart money" people are sometimes "investors"?
Do G&S's "public" and Wyckoff's "speculators" sometimes act the same or is it that "the minor fluctuations and market breadth and activity" produced by the speculators are of a different magnitude than the "hysterical and parabolic price spikes, almost vertical movement with a sharp volume increase" produced by the public?
So then perhaps it is that Wyckoff's "speculators" and G&S's "smart money" are the same crew just sometimes? Or not? Similarly are Wyckoff's "investors" and G&S's "public" the same crew only sometimes? Or not?

lj

 

[dbphoenix]

The terms of reference are Wyckoff's and G&S's quotes in my original post.

Are the actions of Wyckoff''s "investors" to be equated with those of G&S's "smart money" generally speaking or is it just when they are buying and selling quietly? Or is it that the "smart money" people are sometimes "investors"?
Do G&S's "public" and Wyckoff's "speculators" sometimes act the same or is it that "the minor fluctuations and market breadth and activity" produced by the speculators are of a different magnitude than the "hysterical and parabolic price spikes, almost vertical movement with a sharp volume increase" produced by the public?
So then perhaps it is that Wyckoff's "speculators" and G&S's "smart money" are the same crew just sometimes? Or not? Similarly are Wyckoff's "investors" and G&S's "public" the same crew only sometimes? Or not?

lj

I acknowledged the sources you used in what I quoted in my previous post.

And, yes, you can equate "investors" with "professionals" and "smart money" as well as equating "speculators" with "amateurs", "the public", "retail traders", etc. What matters is not the nomenclature but the behavior. Some people define "investor" as someone who buys and holds forever, but this isn't what Wyckoff was going for. He was making a distinction between two types of market participants. He could just as easily have used "professional" and "tipster". Again, the difference lies in the behavior, not in terminology.

Professional money is generally quiet. It avoids calling attention to itself. If it were to do otherwise, it would not be able to accomplish its objectives.

For example, during the accumulation stage, trading activity (TrAc) is low. It's quiet. If for some reason buyers push price too high during this phase, TrAc may rise as selling pressure rises and price is forced back down. Those who are accumulating whatever it is don't want it to rise too soon. When they're ready, they'll orchestrate a potential breakout and, if everything goes as it should, TrAc will rise as buying pressure manifests itself.

At this point, one of the more common misconceptions about volume will also manifest itself, that "big volume" should/must accompany breakouts. What is not generally understood about this part of the process is that whatever "big volume" occurs at this point is the result of professional selling, not professional buying. The professionals, after all, have already bought. They are now unloading at least part of their shares into buying pressure. This increases the level of TrAc. If demand is sufficient, price will continue to rise. If demand isn't there, price will retrace or reverse.

There is also the possibility that the professionals behind this plan are particularly adept and can orchestrate their selling such that the TrAc doesn't rise to any remarkable extent, which helps to explain all those successful breakouts one sees that are accompanied by what one would ordinarily consider to be "weak volume" if one were basing all his beliefs regarding the subject on what he had read rather than on what he had experienced.

There is a logic to all of this that can be more easily seen if one sets aside the dogma which is often presented as thought.

Hope this helps.

Db

 

[ljyoung]

My reason for referring to the terms of reference was so that the terminology of any discussion would be fixed by Wyckoff's and G&S's terminology. I appreciate that it is actions not terminology that is of consequence but it is nonetheless necessary to agree on terminology.

So if I have understood your take correctly: (the bracketed terms are your terms)
investors = smart money = (professionals)
speculators = the public = (amateurs, retail traders) (tipsters = the one who receives the "tip" as opposed to the one who offers the "tip").

Returning then to Wyckoff's quote: "Investors buy or sell quietly (except at infrequent intervals when they may become panicky)", one notes that while it may be true that the "smart money" does at times become panicky, it is my understanding that this trait is much more commonly associated with "the public" as pointed out by G&S: "The public's action is characterised by hysterical and parabolic price spikes ... with a sharp volume increase". So is it just a question of the amount of panickiness?

You state that : "Some people define 'investor' as someone who buys and holds forever, but this isn't what Wyckoff was going for" but clearly in the quote from Wyckoff it is stated by him that: "The investment influence is produced by the buying and selling of all types of people who operate with the idea of holding their positions for what is commonly called the 'long pull'." So is it a question of who the "all types of people are"?

You state that "Professional money is generally quiet" but as well that the "big volume" of break outs ... is the result of professional selling not professional buying". One would think that having accumulated their position, the investors = smart money will dispose of their position when their price objectives are met which are most probably not at the point of the BO. So what they are really relying on at the BO is the participation of the public to carry the move up and as long as the public keeps buying the marked up prices, then all is well. It is basically the hunger of the public which dictates what the smart money does with its accumulated shares at the BO.

So it would seem then that wherever we look there is smart money guiding the public along with a nod, a nudge and a wink and the question is can we tell when the smart money is getting serious about moving things one way or the other?

As opposed to your closing statement, it makes more sense to me if one sets asides thought which has been presented as dogma.

lj

So for fun and profit, where was the smart money action with the GOOGs today? I love those 6.5 points in 5 minutes moves!!

 

[dbphoenix]

So is it just a question of the amount of panickiness?

So is it a question of who the "all types of people are"?

Rather than my trying to guess what you mean by "it", perhaps you could clarify.

So it would seem then that wherever we look there is smart money guiding the public along with a nod, a nudge and a wink and the question is can we tell when the smart money is getting serious about moving things one way or the other?

Always, no. During accumulation and distribution, yes.

As opposed to your closing statement, it makes more sense to me if one sets asides thought which has been presented as dogma.

Thought and dogma don't generally go together.

Db

 

[ljyoung]

Rather than my trying to guess what you mean by "it", perhaps you could clarify.

Always, no. During accumulation and distribution, yes.

Thought and dogma don't generally go together.

Db

In place of “it”, in both instances substitute: “ a resolution of the observed discrepancy noted above”. If you do not believe there is a discrepancy, then “it” and what comes before and after it, becomes nugatory.

We would seem to agree that there may be hints of what the smart money has up its sleeve during periods of accumulation and distribution. The previous statement being so, then it would seem to be appropriate to say that in one way or another the smart money is active during the accumulation and distribution phases. When the markup and markdown phases of the market are operative, the smart money is clearly active since they are dictating, in one way or another, which way things, e.g., prices are to move. In this case we don’t have to try and figure out which way they are going to move the market as they are doing it before our very eyes.

Thus it would seem to me that the smart money is active during all phases of the market and it also seems to me that this activity is “active” not “passive”. They have control and they run the show. Sometimes they are slow, quiet and deliberate and sometimes they are fast, noisy and deliberate. They always attempt to maintain control but if they lose control, they get out. What is also of interest is when two of these groups decide to duke it out. That’s what I think went on with GOOG on Friday.

Tablets of stone on mountaintops aside, I would agree that while born of thought and destroyed (or replenished) by thought, dogma does often manage to survive the intervening time quite nicely (and thoughtlessly), drawing its succour from the gray matter of its devotees.

lj

 

[SOCRATES]

In place of “it”, in both instances substitute: “ a resolution of the observed discrepancy noted above”. If you do not believe there is a discrepancy, then “it” and what comes before and after it, becomes nugatory.

We would seem to agree that there may be hints of what the smart money has up its sleeve during periods of accumulation and distribution. The previous statement being so, then it would seem to be appropriate to say that in one way or another the smart money is active during the accumulation and distribution phases. When the markup and markdown phases of the market are operative, the smart money is clearly active since they are dictating, in one way or another, which way things, e.g., prices are to move. In this case we don’t have to try and figure out which way they are going to move the market as they are doing it before our very eyes.

Thus it would seem to me that the smart money is active during all phases of the market and it also seems to me that this activity is “active” not “passive”. They have control and they run the show. Sometimes they are slow, quiet and deliberate and sometimes they are fast, noisy and deliberate. They always attempt to maintain control but if they lose control, they get out. What is also of interest is when two of these groups decide to duke it out. That’s what I think went on with GOOG on Friday.

Tablets of stone on mountaintops aside, I would agree that while born of thought and destroyed (or replenished) by thought, dogma does often manage to survive the intervening time quite nicely (and thoughtlessly), drawing its succour from the gray matter of its devotees.

lj

Brilliant ! Very well put.

 

[Joey]

Hi Alan;

I am glad that you have come to your senses. There is an old saying, 'If you get something for nothing, then that is usually what it is worth' It is worth paying for a datafeed, the more reliable the better. I now trade Forex using volume and price only, and now that I have managed to separate the different data vendor quotes, I find I am able to read the data much more clearly, and because the FX market is the largest and most liquid, it is the clearest to read using tick volume, and if you don't believe me, then look at the chart. This is my setup and it works very well. If you look at the chart, and you have Tom's book, you will see that after the high volume bars, you get 'Tests' or 'No demand' indicated by the white arrow. The low volume up or down bars are usually followed by a move in the opposite direction, for example, if it is a down bar with a narrow spread, after a down bar on high volume, it is followed by an up move. This is all I look for, and it's very simple AND makes me money.

Regards VSATrader

At last somebody is prepared to post something practical. I am more of a "hands on" person,
to get on with things so to speak rather than engage in erudite discussions regarding bars and waves. It would be helpful if all this wave business, which seems to stretch out on a number of threads, was explained via examples of actual trades, as VSATrader has done i.e how the knowledge actually helps in trade entry, management , exit etc.

Anyway pardon my ignorance in Forex Trading VSATRADER, would appreciate clarification on the following:

1.. Realise SPOT forex is quoted by various vendors, however which datafeed do you use which provides this info. and of the vendor which do you use most, notice you have highlighted
GBP@GAIN AO-FX, could you explain that bit more , please.

2. Understand VSA concepts by Tom Williams are incorporated in his software Tradeguider, do you employ that for your charting.

3. Regarding "TICK" is it possible that a bar may show low tick , but each tick may have lots of contracts exchanged by the Pros. in which case it would be difficult to interpret, would it not.

4. In that respect, would it not be better to trade say CME Currency Future where one could observe actual number of contracts traded.

 

[VRangeTrader]

............................ In that respect, would it not be better to trade say CME Currency Future where one could observe actual number of contracts traded.

First, volume represents activity. Hence tick volume is as useful as actual volume. Secondly, and more importantly, VSA looks at relative volume. That is to say, what is the current bar's volume relative to the previous bar? Or three bars ago? Or all the bars that can be seen at this time?

We all trade our own belief systems. To use Volume Spread Analysis certain things must be believed. Most of these things do not take giant leaps of faith. However, for some this may seem to be one such thing. Ironically, the fact that actual volume is soooo hard to get in forex and some futures, should be all the evidence anyone needs to prove its worth. Why else would the big boys work so hard at keeping it from the rest of us?

 

[pascoal]

Hi
I wonder if any of you could help me I am trying to find stock chartsfor UK where i can draw a 10 day ema for the open and say 5 day ema for the close . Please help

 

[jiggly]

Hi Alan;

I am glad that you have come to your senses. There is an old saying, 'If you get something for nothing, then that is usually what it is worth' It is worth paying for a datafeed, the more reliable the better. I now trade Forex using volume and price only, and now that I have managed to separate the different data vendor quotes, I find I am able to read the data much more clearly, and because the FX market is the largest and most liquid, it is the clearest to read using tick volume, and if you don't believe me, then look at the chart. This is my setup and it works very well. If you look at the chart, and you have Tom's book, you will see that after the high volume bars, you get 'Tests' or 'No demand' indicated by the white arrow. The low volume up or down bars are usually followed by a move in the opposite direction, for example, if it is a down bar with a narrow spread, after a down bar on high volume, it is followed by an up move. This is all I look for, and it's very simple AND makes me money.

Regards VSATrader

VSA TRader

have you looked at Metatrader's data feed and volume, do you have any comments on the reliability and of thew price feed and volume study on this free charting tool.

 

[grantx]

Following this thread has convinced me of the importance (primacy?) of volume. Some time ago I copied most of this thread into a Word document (and its one large file) for later study.

My problem was accessing and extracting relevant data from my feed. Now I’ve written an Excel programme to do this. This is the data I extract: time, last, last size, bid, ask, bid size, ask size.

From this I determine change from last, change on bid, change on ask, whether last trade was at bid, ask, mid, below bid, above ask. The time period can be tick onwards. I don’t know which of these is relevant or how to interpret the various elements. Would someone please give a brief synopsis, suggest other elements/factors to consider, improvements to the programme. I really don’t feel like trawling through that Word document at the moment.

Possibly of secondary value, I also record where the last is in relation to open, high, low, previous close, fair value.

Thank you in advance.

Grant.