Price, (Volume), Support, Resistance, Demand, Supply . . .

This is a discussion on Price, (Volume), Support, Resistance, Demand, Supply . . . within the Technical Analysis forums, part of the Methods category; I agree about accumulation occuring at a price due to "institutes" wanting to buy big vol at price x, with ...

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Old Aug 2, 2004, 12:54pm   #16
 
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I agree about accumulation occuring at a price due to "institutes" wanting to buy big vol at price x, with the help of MM's.... however, on idecies, I think accumulation occurs in a band where the market in general ( the big boys) prepare for a move.
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Old Aug 2, 2004, 1:01pm   #17
 
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Originally Posted by ChartMan
I agree about accumulation occuring at a price due to "institutes" wanting to buy big vol at price x, with the help of MM's.... however, on idecies, I think accumulation occurs in a band where the market in general ( the big boys) prepare for a move.
Where it occurs isn't as important as how it occurs and how long it takes. Generally, "accumulation" that takes place quickly won't take enough supply out of the picture to enable a move that is significant enough to generate more than a paltry profit, if any.
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Old Aug 2, 2004, 1:07pm   #18
 
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The problem with pure price/volume analysis is not being able to split buy volume from sell volume systematically, you can only do it by studying the day's trades and it's prone to error. If I'm wrong there, someone let me know. In looking at price/volume alone, how can you know or at least get a feel for buy/sell volumes within the single volume figure reported?

I looked at 10 years EOD of one UK big cap and found no relationship between t-1 price movement and volume movement and t0 price movement (perhaps a very slight tendency for price to continue downwards if previous day's price was down and volume was up, but probably insignificant). It was a crude analysis however, in preparation for something finer which I'm working on).

In practice do you end up concluding that the high volume candle/bar at the bottom of a dip meant buys kicked in and added to the existing sells giving high volume overall, AFTER the event? During the event you could as easily assume it was sells increasing to accelerate the down move. Early thoughts on this and quite basic.
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Old Aug 2, 2004, 1:16pm   #19
 
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Originally Posted by blackcab
The problem with pure price/volume analysis is not being able to split buy volume from sell volume.
Blackcab, you're going to have to help me out with that one. I thought for every Buy there was a corresponding Sell?
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Old Aug 2, 2004, 1:31pm   #20
 
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Originally Posted by blackcab
The problem with pure price/volume analysis is not being able to split buy volume from sell volume systematically, you can only do it by studying the day's trades and it's prone to error. If I'm wrong there, someone let me know. In looking at price/volume alone, how can you know or at least get a feel for buy/sell volumes within the single volume figure reported?

I looked at 10 years EOD of one UK big cap and found no relationship between t-1 price movement and volume movement and t0 price movement (perhaps a very slight tendency for price to continue downwards if previous day's price was down and volume was up, but probably insignificant). It was a crude analysis however, in preparation for something finer which I'm working on).

In practice do you end up concluding that the high volume candle/bar at the bottom of a dip meant buys kicked in and added to the existing sells giving high volume overall, AFTER the event? During the event you could as easily assume it was sells increasing to accelerate the down move. Early thoughts on this and quite basic.

Volume in and of itself is reflective only of trading activity, such as the number of shares traded. In order to know whether it is indicative of demand or supply, you have to look at the results of all this activity, i.e., the effect on price. In other words, there is no such thing as "buy" volume or "sell" volume; there is only volume, since a buy cannot take place without a sell (or vice-versa). What makes price move up is not the buys in and of themselves, but the demand.

As to high volume at the bottom of a dip or W or rounded bottom or whatever, again, it depends on the effect on price. If there's a lot of volume and price doesn't fall, then you can assume that the selling is exhausted and that aggressive buyers can buy the bounce, or that more conservative buyers can begin the accumulation process, depending on the context. If volume is high and price continues to fall, then selling is not yet done and buyers are not willing to do more than take shares off the hands of panicky sellers; they are not, in other words, anywhere near ready to pay a premium to stop the decline. The fact that the volume is high, however, suggests that selling is near an end.

Of course, "high" is relative and has little meaning unless it is placed within the context of a chart. One man's selling climax is another man's continuation unless one looks at the forest.
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Old Aug 2, 2004, 2:04pm   #21
 
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But within any single volume bar the ratio of buys to sells isn't 50:50 is it, the MMs don't keep perfectly flat books within short timeframes. On say an EOD chart, I don't see how you can say that the high volume at the bottom of a decline is due to exhausted sellers and aggressive buyers IF every buy & sell are matched - if they were matched and vol is high, there's still a ton of selling. They get matched of course but over time is what I'm getting at. Maybe this is getting OT and I should get my thoughts clearer.
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Old Aug 2, 2004, 2:11pm   #22
 
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Originally Posted by blackcab
But within any single volume bar the ratio of buys to sells isn't 50:50 is it, the MMs don't keep perfectly flat books within short timeframes. On say an EOD chart, I don't see how you can say that the high volume at the bottom of a decline is due to exhausted sellers and aggressive buyers IF every buy & sell are matched - if they were matched and vol is high, there's still a ton of selling. They get matched of course but over time is what I'm getting at. Maybe this is getting OT and I should get my thoughts clearer.
There can't be a buy without a sell. What moves price is not buyers but demand. If buyers aren't willing to pay what sellers want, then sellers have to drop their price. Otherwise, no trade takes place.

This is a biggie, so don't try to swallow it without chewing on it for a while.
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Old Aug 2, 2004, 4:33pm   #23
 
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Dbp - I have read your stuff before and have always been impressed. You were the one who actually inspired me to take a long, hard look at price, volume, supply, demand etc.

I have done this and believe that a good appreciation of the interaction of price, volume etc. etc. is basically all that is required to become an adept trader.

However in order to do this, one has to move a little away from the theoretical aspects of the subject and put together a practical, workable method / system based on price and volume with maybe a little sprinkling of assistance from indicators.

I have been spending the past few months on this and have now reached the stage where I can say that I do have a workable system based primarily on the interaction of price and volume, which usually gets me into the market quite easily but keeps me out on days like today where there is not a great deal of direction.

Price and volume is NEARLY everything for me and I cannot now look solely at a price chart. I need the accompanying volume chart in order that I can read the unfolding story.

A good book to read is "Techniques of Tape Reading" by Graifer & Schumacher. This has helped me a great deal and is one of the very few books that I would give any credence to.

Thanks dbp for starting what will certainly become a great thread. I liked the " No indicators" thread for a while but it seemed to lose its way somewhere.
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Old Aug 2, 2004, 6:57pm   #24
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Hi,

Great to see you here dbp, and I hope this thread really gets going.

My understanding is you can identify whether voume is majorly 'buying' or 'selling' volume by the resulting price action, ie what occured on the price bar as a result of the volume, did it close higher or lower, is the spread wide or narrow ?

For example if volume is steadily higher than the previous few bars and the price bar spread is wide, closing on the highs, and the bar is up, this is demand overcoming supply, the price is marked up during the price bar because there's more demand(buy) orders chasing fewer supply(sell) orders. The MM's know this, they can see the orders on both sides of the market and mark the price up accordingly.

However, the same up bar (spread wide, volume high) but closing on the lows is probably supply overcoming demand, the price was marked up but closed on the lows due to supply swamping the demand. A sign of weakness before the market turns.

A real red flag I look for is an up bar with high volume and little price movement (narrow spread), for me this can only be supply swamping demand on the way up, and a sign of distribution.

These and other tape reading studies are useful, but I'd love to hear how you go about creating specific criteria for entering and managing a trades.


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Old Aug 2, 2004, 7:49pm   #25
 
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It might help some of you to look at the charts on the site below which deals with price and volume. I do not endorse the products but you might be interested in the free content ( Charts) on the below link.


http://www.tradeguider.com/chart2.asp
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Old Aug 2, 2004, 8:09pm   #26
 
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Originally Posted by Porks

These and other tape reading studies are useful, but I'd love to hear how you go about creating specific criteria for entering and managing a trade.
My experience has been that rushing into the premature creation and definition of setups is a serious mistake, though not everyone will agree with this. Trading via price and the interpretation of buying and selling pressure requires a certain way of seeing and nearly always requires that a great deal be unlearned.

This is not to say that one just ought to stare at charts being formed all day, every day, day after day, with no objective other than to endure the experience. However, it's important to note how price moves, and to try to figure out why it moves that way.

To a large extent, that's where S and R come in, so perhaps one of the first steps is to develop an understanding of S and R.
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Old Aug 2, 2004, 9:56pm   #27
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dbp

Hi,

It's good to see you around here.
I hope we are going to get into a discusion on price action with no volume to take into consideration (FX) soon.

All the best to everyone.
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Old Aug 3, 2004, 6:54pm   #28
 
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I hope we are going to get into a discusion on price action with no volume to take into consideration (FX) soon.
You'll probably want to investigate point & figure charting. I'm sure there's a thread on it somewhere.
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Old Aug 3, 2004, 7:49pm   #29
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Dbp,

Here's my take on S and R

- Floating supply must be removed to penetrate resistance.A move up through resistance mainly occurs not because of increasing buying but because of an absence of selling
- It takes professional money to penetrate Resistance, and higher volume with movement in the price action to confirm a valid penetration

- A market will only fall through a support area when there's an absence professional buying
- Again increasing volume with price movement within the bar confirms a break through support

When prices are approaching both support and resistance on decreasing volume this shows a lack of interest from professional money to participate at these levels and prices are more likely to reverse.

Porks.
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Old Aug 3, 2004, 8:09pm   #30
 
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Originally Posted by Porks
Dbp,

Here's my take on S and R

- Floating supply must be removed to penetrate resistance.A move up through resistance mainly occurs not because of increasing buying but because of an absence of selling
- It takes professional money to penetrate Resistance, and higher volume with movement in the price action to confirm a valid penetration

- A market will only fall through a support area when there's an absence professional buying
- Again increasing volume with price movement within the bar confirms a break through support

When prices are approaching both support and resistance on decreasing volume this shows a lack of interest from professional money to participate at these levels and prices are more likely to reverse.

Porks.

You seem to be equating R with supply and S with demand. You may have better luck by equating R with selling pressure and S with buying pressure. Buying, selling, support, resistance, demand, supply are related, but they are distinct.

For example, if there's an "absence of selling", there can't be any buying. In order for a transaction to be completed, there must be both.

Similarly, volume has nothing to do with whether a penetration of S or R is valid or not. Volume often comes later, if at all. And of course, if S or R don't provide S or R, then they aren't, though they may have been at one time.

Last edited by dbphoenix; Aug 3, 2004 at 8:15pm.
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