OK, there seems to be a lot to discuss here regarding the use of using bars cut up by volume or range as opposed to time. I don’t think we have scratched the surface, but nevertheless, onwards.
What about cutting up the volume according to different measures?
The title of this thread is “new analysis technologies”, so can I introduce another new one (well, it was to me)?
The first chart attached to this post has volume posted below it, but volume presented in 3 ways. The bars are constant volume, in this case each bar is formed from the trading of 4,000 contracts. It is a quick-forming bar, and is of value for short-term trading. The first chart is a blow-up to explain the components of volume.
Now, because it is a constant volume bar, the volume for each price bar is the same, in this case 4,000.
The volume bar labelled “1”, and coloured the darker of the green, shows the amount of volume that traded at the offer price over the course of the bar forming. In the case of the bar labelled with the “1” this is about 3,200.
What is meant by trading at the offer is this is 3,200 contracts over the course of the bar where the buyers were “impatient” enough to jump in to buy at whatever the sellers were asking. I would refer to this as “aggressive” buying.
By implication, 800 contracts (4,000 minus 3,200) were bought by more patient buyers who had their bid hit. Also by implication, 800 contracts were sold by sellers impatient enough to sell at the bid (aggressive sellers), and also again by implication, 3,200 contracts were sold by sellers sitting patiently on the offer.
Anyone with an interest in VSA might be sitting up a little straighter in their chairs at this stage – in electronic markets the ability exists to see what the buyers and sellers are doing within each bar (at each price actually) in real time. The implications are not linear – “more aggressive buyers therefore I will buy too” is not necessarily a profitable tactic – but certainly they are interesting?
The lighter, or brighter colour green, labelled “2” in the first chart is the “aggressive” buying done by buyers trading 100 or more contracts in one hit – big, aggressive buyers. (Now, this needs to be monitored carefully, what if one buyer pays the offer for 150 contracts at one go, but the sellers are made up of a 20, 15, 25, 80, 5 and 5, I don’t know if this is reported as one trade of 150 or 6 trades of the amounts I detailed, I would love to hear more info on this).
The hollow red is the aggressive sellers, those sellers trading in hits of 100 or more. This is labelled “3”.
Of course these definitions of 100 or more are my definitions, you can choose whatever you wish. By the way, this stuff exists in many different softwares, I am not pushing any particular one.
OK, is this information of value, and if so how can you use this information? Well, that’s for you to answer, not for me to say. I am using it, but still haven’t settled on the one true approach (for me). Hence this thread, feedback appreciated.
Second chart attached shows the first 2 hours of regular trading hours of a 4000 volume constant bar chart, with volumes cut up as described.