Recognising Volume - opportunity or trap?

[tech/a]

Thought Id start this thread as many have a view that increased volume must indicate strong bullish conditions.
Sometimes this is correct others not so correct.
I thought it might be of interest to go through some case studies to see if we cant identify the possible meaning of volume at specific points of Trades.

Here is example 1
What do you think will happen/happened and WHY?
No need to specify the stock as its about reading the volume and price action.

 

[prawn_86]

Re: Recognising Volume-----opportunity or trap.

Hey Tech, i like you posts, and as you know am a begginer at t/a but here is my interpretation...

I think that the price will increase from here as it originally broke through resistance at 5c on volume.
2 days after that opened and closed the same but had a large intra-day high, indicating more sellers than buyers at the higher levels.
The final day is the decider for me, as once again big volumes, but the price was pushed up from an intraday low to close higher than open.

I would suggest that it would mean a rise in the future, or at the least, new support has been found about 5.9c.


Is this a deliberate trap tech? ie - do you already have the next set of data?

 

[glenn_r]

Re: Recognising Volume-----opportunity or trap.

G'day Tech

Maybe another thing to discuss first IMO, is do you believe volume spread analysis is the same for blue chips and penny dreadfuls?

 

[IFocus]

Re: Recognising Volume-----opportunity or trap.

Hi Glen

G'day Tech

Maybe another thing to discuss first IMO, is do you believe volume spread analysis is the same for blue chips and penny dreadfuls?

Over the years i have noticed that as long as there is plenty of liquidity it tends to apply at both ends of the market, I am sure others may disagree.

Focus

 

[motorway]

Re: Recognising Volume-----opportunity or trap.

Liquidity is not a fixed attribute

And in any case

When Mkts are at extremes of liquidity
Risk reward is often most unfavourable

It is always changes in a relative sense that mater
changes in liquidity gives pointers in any case.

The vast majority of people
would prefer to buy
after they see liquidity increase
after they see volume and price expand

they would rather do that and buy at higher prices
Then risk Buying at much more favourabe prices
when the stock is dull

So there is a bit of psychology that should make reading that chart a cinch.

motorway

 

[tech/a]

Re: Recognising Volume-----opportunity or trap.

Prawn yes I do.
Yes it could be a trap and in further exmples there will certainly be some curly ones.But you have supported your case and right or wrong will give you confirmation of your thinking or some other things to think about.

Glenn
I know your a keen follower of VSA.
In response to your question.
I've been working with Small caps and VSA for some months.
Yes I do think/know that it is applicable and infact sometimes more so representative of crowd behaviour.While "Smart" money may not be the cause and effect (Institutions) I'm sure there are big money players involved.
I'll be showing mainly small cap plays as examples.

Another point which your question leads indirectly to is Liquidity.
On a daily basis you have to have it and you need reasonable range overtime to be able to read the chart.If its not there I'll pass. However when it does come in then it is often very possible to apply it.

One step more is the question of liquidity relative to timeframe.

EG can I trade VSA with a min chart.
For most things I'd say no.
Ive found for 15 min for very liquid stocks and 120/180 min for most others,this tends to give good enough volume and range to be meaningful.

I have a thing with smalls.
I like 10-20-50% gains in short periods.
I know you can apply all the Risk rules and take low risk high return entries often enough for me to have a desire to become "expert" at this.
Getting better everyday!

 

[Aerosky]

Re: Recognising Volume-----opportunity or trap.

My production on this is that in the next day volume will fall and so will the price (to 5.6ish) except if there is high level of buyers at 5.8 and 5.9.
However I’m not the person to listen to when it comes to volume reading.

 

[Awesomandy]

Re: Recognising Volume-----opportunity or trap.

I think this one is a little bit hard to call. It has broken through the resistance at 5c, but the large increases in volume hasn't really given the sp a run. I would expect a 5c share to go up quite a bit more, actually. The prices for the past few days seem to be quite volatile as well. It's moving up and down, but has no clear indications of where it really wants to go. So, being a beginner and with my rather cautious ways, I would watch this one for a little longer. Generally though, I interpret volume as an indicator of change; whether the sp goes up or down it's a different story.

 

[MS+Tradesim]

Re: Recognising Volume-----opportunity or trap.

I don't have TG yet, but based on my experience I would say the probability slants towards a fall to about 5.5-5.6 on relatively low volume. If that level is breached I would then say there is about a 40-50% chance of an accelerated fall towards the 5c mark. If that level is not breached I would see the probability of it drifting sideways and then lower over a period of weeks. I would say there is an extremely low probability of an upside breakout any time soon. The gravestone candle with the highest high indicates the upper side was tested and failed on high volume. The following day has an opening markdown and buy-up but on lower vol - I read this as the larger volume holders only coming out close to the 6.0c mark. They are not dumping down but waiter for the buyers to come and meet them. The next day again tests the 6.0c mark on very high volume but fails again to translate into a breakout. The higher volume but failure to continue upwards indicates to me that large volume holders are taking the opportunity to dump stock into strength.

Ps. Longer term I would put odds on consolidation between 5c and 6c with a breakout down the road. I would not trade this at the moment though.

 

[nizar]

Re: Recognising Volume-----opportunity or trap.

Thought Id start this thread as many have a view that increased volume must indicate strong bullish conditions.
Sometimes this is correct others not so correct.
I thought it might be of interest to go through some case studies to see if we cant identify the possible meaning of volume at specific points of Trades.

Here is example 1
What do you think will happen/happened and WHY?
No need to specify the stock as its about reading the volume and price action.

I'll give it a go.
Breakout day = Day 1.

So on day 1 we have a break through resistance on volume.
Very bullish.
(I probably would have bought on or near the close of this day if I saw and would still be holding).

On Day 2, gapped up too much, sold down.

Day 3 gapped up again and then still UP before getting smashed back down to the open. But the next day it opens lower and we have a buying opportunity or so the market says, and we get a nice white candle close on the high.

Continuation on the next bar (just noticed it wasnt daily).

Overall bullish, higher highs and higher lows since the breakout day. High relative volume is still there showing sustained interest in the stock.

Looks good to me.

 

[black_bird2]

Re: Recognising Volume-----opportunity or trap.

As a newbie, my stab in the dark is that with the price appearing to flatten out but still good volume, I think that the next day would see a slight increase in the SP and volume to drop off. The next day profit takers coming on in and volume up but price down a little and a new support level around the 5.5cents level. However, I will keep a keen eye on this thread and see if I can learn something.

Would it not be correct to think that with an increase in price and volume that there is obviously demand and therefore a continued increase in SP the following day??

 

[Kauri]

Re: Recognising Volume-----opportunity or trap.

Good basing for a few weeks, a couple of probes lower quickly rejected.. the last a couple of weeks back... might have had me buying on the break of 52... the high vol and finish on the days lows a couple of days back would have seen me out... but then again.
Cheers
..........Kauri

 

[cuttlefish]

Re: Recognising Volume-----opportunity or trap.

technicals not my strong point but have been enjoying reading and learning on this site and starting to apply some of it.

My view - bar 1 breakout on volume - very bullish.

bar 2 gap up bullish, then it retraced but this is on lower volume - so sellers weren't prepared to let go. It also still closed above previous days close so still bullish.

bar 3 - higher volume top - buying volume increased but still didn't beat sellers - bearish.

bar 4 - gap down on open - then rising, but on lower volume than previous day - so buying exhaustion - failed to close above previous day - neutral/slightly bearish.

bar 5 very high volume but still failed to significantly overcomes sellers. I think the sellers in bar 5 are probably buyers from the previous few days looking to escape, while the buyers on this day are looking for short term gain, because long termers have had an opportunity for four days now and would have taken it earlier and HELD thus creating low volume on this day. So the high volume in this bar indicates previous spec buyers selling. The new buyers are probably also spec buyers because long termers have had ample opportunity the previous 3 days. The high volume means that there is an even larger number of short term holders now looking for an exit and likely to panic on softness.

So I reckon its likely to fall on the next bar. I think the last bar would have been bullish if volume was low, but the high volume without a significant rise is bearish.

I've probably just proven that I should stick to fundamentals!

(but while I'm enjoying the fantasy let me continue )
Rejection of lows prior to breakout and the actual breakout itself are still bullish overall, so possible retrace back to 5.4 over next couple of bars, then consolidation in 5.2 to 5.4 range before continuation of uptrend.

 

[tech/a]

Re: Recognising Volume-----opportunity or trap.

Bars 13 to 1 have significance.Some good attempts here I wont comment as I know the answer. After 8 tonight I'll post the continuation of the chart with a significant bar to interpret as the last bar.

 

[doctorj]

Re: Recognising Volume-----opportunity or trap.

as I know the answer

Your post implies there is a single, certain answer. While in this case there is because it's historical, even the best analysis will only provide a balance of probabilities on a prove/disprove basis but never certainty.

 

[tech/a]

Re: Recognising Volume-----opportunity or trap.

While in this case there is because it's historical

Thats why I KNOW the answer.

even the best analysis will only provide a balance of probabilities on a prove/disprove basis but never certainty.

A mantra of my own.
Mind you I'm seeing a regular in balance in probability with the application of certain analysis.

 

[Vito]

Re: Recognising Volume-----opportunity or trap.

Hi,
I am only a novice and i trying to learn about VSA. My interpretation is as follows.

1. The bar of five days ago tells me that long term holders have taken the opportunity to sell the stock on good news or some sort or demand. High volume close off the high.
2. 4 days ago has also signs of distribution.
3. 3 days ago a definite blow off high.
4. Bar 2 Low volume close on the high suggest that there arn't many sellers about. Lower volume close on the high.
5. Bar 1. I think its distribution. Very high volume, not a large ranging bar and a close of the high.

To me this looks like distribution and I would want to see more evidence that all of the sellers are out of the market before I would buy the stock.


Vito

 

[motorway]

Re: Recognising Volume-----opportunity or trap.

I agree with vito

That is a ultra high Volume Bar

A lot of supply is meeting the demand

So will it go down
or sideways

The higher low

suggests that demand is at least absorbing the supply

If the buyers are smart
they should pull their bids

But maybe the buyers are not smart
because that is what that ultra high volume suggests

There is no icon for a head on the chopping block


motorway

 

[tech/a]

Re: Recognising Volume-----opportunity or trap.

Just realised that the chart is a 180 min chart.
I dont have that at home so you'll have to wait for tommorow.
Sorry.

Seems most agree that stops should now be tight.There is evidence presented but not conclusive---Yet.

The struggle between buyers and sellers though is being won by the buyers as price is still rising overall as some have pointed out Motorway says that supply is being absorbed by demand.

Till tommorow.

 

[Garpal Gumnut]

Re: Recognising Volume-----opportunity or trap.

Just realised that the chart is a 180 min chart.
I dont have that at home so you'll have to wait for tommorow.
Sorry.

Seems most agree that stops should now be tight.There is evidence presented but not conclusive---Yet.

The struggle between buyers and sellers though is being won by the buyers as price is still rising overall as some have pointed out Motorway says that supply is being absorbed by demand.

Till tommorow.

Jeez tech , you really know how to ruin a bloke's 8 o'clock.

gg