Volume: How can it be used in trading?

[tech/a]

Not at all and appreciate your feedback.
My concern with the last few trading days is that their hasn't been an efficiency in price movement with the commensurate volume that has remained consistently strong last week.

There is a lower probability of a breakthrough - that is what the volume is telling us right now.

One thing that is seemingly counter-intuitive to some Tech, and I have seen you mention this before, is that you don't necessarily need volume for a run. It is the lack of volume, or rather the drying up of sellers that allows the demand to translate into higher prices. So where marketsurfer mentions that research, it is rather the absence of volume that can paint the picture ( like your test days on low volume).
High volume days are a breed of their own and need to be thought about in the context in which they occur.

Exactly.

 

[motorway]

The research on price volume relationships is interesting.
But not definitive

The key is in that word relationship...
I think wyckoff was right
It is price ( range ) volume and time that together tell the story..

Have a look at this paper
it mentions some of the models

http://www.accessecon.com/pubs/EB/2008/Volume7/EB-08G10010A.pdf

Volume can be new information ( leads price )
Volume can be dispersal of information ( lags price )
Volume can just be difference of opinions ( low volume will then lead price )
Volume can be just NOISE ( feedback )

Price leads Volume , and Volume leads Price

But all factors are telling a story together
that unfolds



Motorway

 

[tech/a]

The research on price volume relationships is interesting.
But not definitive

The key is in that word relationship...
I think wyckoff was right
It is price ( range ) volume and time that together tell the story..

Have a look at this paper
it mentions some of the models

http://www.accessecon.com/pubs/EB/2008/Volume7/EB-08G10010A.pdf

Volume can be new information ( leads price )
Volume can be dispersal of information ( lags price )
Volume can just be difference of opinions ( low volume will then lead price )
Volume can be just NOISE ( feedback )

Price leads Volume , and Volume leads Price

But all factors are telling a story together
that unfolds



Motorway

Exactly again.
What an interesting and diverse topic to apply to your trading.
Fascinating!

 

[Synergy]

For the first time I understand every line of a motorway post

Are you sure you didn't forget to hit the 'encrypt' button motorway?

I use volume as a key part of my entries, but not so much after that. I initially tried to put a condition into my system that allowed the price to break my stop (off market stop), so long as the volume was very low. Interestingly, what I ended up with is a system that exits on extemely low volume (next day), regardless of price. In my case, I suspect this works because I trade rather illiquid stocks, and low volume is not a good sign of things to come.

The difficult thing i find with volume, and end of day data, is candles don't tell the whole story. Without going to different timeframes it's impossible to tell whether the volume was going down, or up, or all at the open or close.

 

[Wysiwyg]

Interestingly, what I ended up with is a system that exits on extemely low volume (next day), regardless of price. In my case, I suspect this works because I trade rather illiquid stocks, and low volume is not a good sign of things to come.

That is a bogey in system testing in my opinion. Spread is generally greater with illiquidity hence in ALL my systems testing I have a formula limit (courtesy of H. Bandy).
So for an n period the average turnover has to be greater than a nominal figure (high enough to allow me to enter and exit without a problem) and this is calculated by finding an average by multiplying the close price times the close volume over an n period. Then this average has to be greater than a nominal amount.
It is an approximation of the average turnover for an n period.

 

[Synergy]

I use a volume filter also, but that doesn't stop low volume days, or a string of low volume days. And I trade relatively illiquid stocks by choice, so not complaining.

Here is a chart for discussion.

 

[tech/a]

by multiplying the close price times the close volume over an n period

liquidity filter.

Plus my take on the chart presented
Mostly from a volume /range point of view.
There is a little here on breakouts and tops of Patterns/and Trends.
Next I'll discuss both.
Click to expand

 

[Mistagear]

Tech,
Thanks for your comments, and others also for posting.This thread and your explanations are helping to expand my understanding of VSA, much appreciated.
Cheers, M

 

[satanoperca]

Thanks Tech/A for the explainations.

Just one question, do you also take into consideration the overall market conditions for the day, days or week of volume you are trying to read?

Ie If the market had a strong up day, how did this effect the volume/price on the day of the stock in question?

Or the market has a large down day, but the stock had a low volume tight range up day. Wouldn't this provide a larger clue to the strength of the individual stock than just looking at the volume/price of the stock alone.

Cheers

 

[tech/a]

Thanks Tech/A for the explainations.

Just one question, do you also take into consideration the overall market conditions for the day, days or week of volume you are trying to read?

No not generally however you and I will note that some closely correlated stocks will certainly mimic the/an index and as such often Volume and range in a number of stocks will pre empt an index.

Ie If the market had a strong up day, how did this effect the volume/price on the day of the stock in question?

If strong turns to extreme then all are going to react. Other than that correlation will be the key. Not something I look for.

Or the market has a large down day, but the stock had a low volume tight range up day. Wouldn't this provide a larger clue to the strength of the individual stock than just looking at the volume/price of the stock alone.
Cheers

Correlation again.Each on their own merits.

 

[WaveSurfer]

....Having traded VSA now for over 3 yrs I find it extremely important in my day to day management of my discretionary trading.....

Hi tech,

Would you mind elaborating to this dead head on what VSA is short for?

Searching Google returned everything but the answer I was looking for (http://www.google.com.au/search?q=VSA). Volleyball South Australia, The Victorian Speleological Association.... lol

:alcohol:

 

[Whiskers]

Hi tech,

Would you mind elaborating to this dead head on what VSA is short for?

Searching Google returned everything but the answer I was looking for (http://www.google.com.au/search?q=VSA). Volleyball South Australia, The Victorian Speleological Association.... lol

:alcohol:

Volume Spread Analysis.

 

[WaveSurfer]

Volume Spread Analysis.

Cheers Whiskers.

 

[tech/a]

Yeh I know what you mean.

I had a lot of trouble finding the National Dyslexic Association until I looked up ADN

This is what I use.

http://www.tradeguider.com/

I know Gavin well enough to have a beer.
But these guys while they have a great product also are the consumate in Marketing.
Extracting every last $$ their clients are willing to part with.
Gavin un fortunately is so passionate about Tradeguider and his company that he takes up 50% of his trading lectures selling it.
This is REALLY annoying.
Not to mention that Gavins Voice send you to sleep---all of which I have told Gavin.

The concept derived from Wyckoff is very powerful and one of my main tools.
Yes I use it in combination with other analysis.

 

[tech/a]

Thanks tech.

This looks extremely interesting and best of all logical (can't argue with the laws of supply and demand). I just found the book "Master the Markets" in your other thread. Will be reading this one with great interest. And doing some research on Mr. Wyckoff.

Oh, how does this relate to forex? I see it is being used; but on tick volume - is this correct? What are your thoughts on this?

Cheers again mate

Yes correct.From what Ive seen in some of their live trade webinars it works just as well.

Ive not traded Forex.

But traded the SPI for a couple of months.
Enjoyed it and did ok but dont have the time to trade short term intraday due to a group of people who want to work for me and another lot who want me to build things.

Look forward to trading some currency pairs. Should get the feed and watch the action for a few months to get a feel.

Video after Video here.
Just flick past Gavins Dronning.

http://www.youtube.com/results?search_query=Tradeguider+forex&search_type=&aq=f

 

[AzzaB80]

I use Market Profile in combination with volume to determine my strategy for a given day.

When we have a balanced market in that the Market Profile chart looks like a bell curve, price will normally be attracted to the point of control (which is normally the greatest volume @ price on a balanced day) with any break away needing significant volume compared to average to be sustained. If volume is below average I look at fading for a mean revision trade, if volume is above average I go with the break out.

In a trending market I use volume for looking at directional performance. Volume combined with direction and value area placement can give a guide to strength of the current trend. This is all from Jim Dalton’s Mind over Markets if anyone is interested.

Also low relative volume can also indicate lack of longer time frame participants which normally means day/short term traders are in control. I find obvious support/resistance areas are more likely to be respected on these days.

 

[tech/a]

Jim Dalton’s Mind over Markets

Great book on a topic I find has high technical merit as a trading platform.
CBOT had a fee E book which I got a hold of and is a tremendous source for anyone interested.

What software do you use to plot profiles?

 

[ThingyMajiggy]

All I can say is Ive watched Sebastian (Forget his last name)

Manby

 

[AzzaB80]

Great book on a topic I find has high technical merit as a trading platform.
CBOT had a fee E book which I got a hold of and is a tremendous source for anyone interested.

What software do you use to plot profiles?

I'm surpised it doesn't get mentioned more around here as that and his second "Markets In Profile" are by far the best trading books I've ever read. Even if your not into Market Profile.

I was using the Fin Alg plug in for Ninja Trader but I've recently switched to Investor R/T which is much better if you can get used to the interface. Still use Ninja for execution though.

 

[roland]

Here is CPL for discussion, a long period of consolidation until an increase in volume pushes it over the resistance level. A slight drop off in volume as the resistance is tested. Once new support is confirmed, volume increases to support the increase in SP, then a blow off with high volume at a the charts high.

Finally volume is dropping off to indicate:

1. New support level?
2. Reversal?

I suppose if we look at the Stochastic, could we assume that we should have a continuation of the rise.

Have I read this correctly?