Candlesticks - Volume

TheBramble

Legendary member
8,394 1,170
Reading one of Nison's excellent books and was a little thrown in one of the examples he has used.

Shows a Bullish Engulfing pattern (in a down trend, a black candle has its open/close range covered (engulfed) be the subsequent white candle's open/close.

The volume on the second candle is less than the first. Nison states this isn't as strong a bullish indicator as if the white candle was on higher volume than the black.

I would have thought a massively bullish move on low volume would indicate a lack of supply (low volume) with big demand (wide price range).
 

barjon

Legendary member
10,705 1,809
Lack of supply maybe (with sellers pausing for breath?) but also
lack of increased demand in view of low volume. Merely that
buyers who were about had to bid up because of lack of sellers?
Not the same as a heavy volume engulf which would show a big
increase in demand with buyers overwhelming sellers?
 

TheBramble

Legendary member
8,394 1,170
Ron, thanks for that. Downloaded and read earlier this week.

Which is precisely why I was thinking lower volume was a more bullish indication (in the example I initially posted) than higher volume.

Where there's high demand and low supply, the volume will be low but the price range wide.

I'm reading too much. Seems for every logical explanation of each event, there's an equally logical and totally opposite interpretation of that same event.
 

Rognvald

Established member
916 15
I think you have to see these things in a context and not as an isolated generalisation:)
 

TWI

Senior member
2,536 254
I think it is explained by the fact that relatively big moves in illiquid markets are far more common than big moves in liquid markets. It is far easier to send the oats market limit up or down than it is corn for example but which one would you find more significant?
 

The Baptist

Established member
715 45
TheBramble said:
Ron, thanks for that. Downloaded and read earlier this week.

Which is precisely why I was thinking lower volume was a more bullish indication (in the example I initially posted) than higher volume.

Where there's high demand and low supply, the volume will be low but the price range wide.

I'm reading too much. Seems for every logical explanation of each event, there's an equally logical and totally opposite interpretation of that same event.


The way I view it is that Volume is like an emphasizer. it is not directional just lots of it ,enforces the significance of the move. If the price has gone up on high volume, it indicates aggressive buying, think of a level II screen and every buyer hitting the offers and working there way through the depth of the offers.

on light volume it just means a less interest and hence not as much validity in the price move.

another example would be some extremely wealthy people would still buy Ferrari's if they were a £million but they would be very few, the true market price for the 10000 units a year market is £100K and that price is well supported in volume at this level.

This places the satisfaction and general market agreement of this satisfaction as something worth £100K while it is poorly supported at the higher levels and volumes would drop and price too until the true perception of value is attained. Volume adds consensus of belief and big volume on a rise is a stronger consensus.

exscuse the car analogy.
 

SOCRATES

Veteren member
4,966 136
I am not going to say very much except that it is not so simple.

Consider that for every logical explanation of each event, there is an equally logical and opposite interpretation of that same event.

It means that you can do with volume what you like.

This is because turning the argument on its head, then for each event there are two or more interpretations to be put upon it from the point of view of volume.

It is apt to cause these two or more interpretations to create uncertainty for the inexperienced.

This is a great mystification to a lot of people when they first encounter and include volume in their analysis of price movement.

Selecting the right one is a matter of familiarity and experience in dealing with the implications of the intensity or otherwise of volume and where and when it appears.
 

frugi

1
1,827 126
Oh dear another silly ramble

Context is king. That is the trite phrase that has been reverberating around my thick skull for the past few months, like Widor's Toccata might to the nervous young organist due to perform it.

Interpreting the condition of the market is the grail, as far as I'm concerned. If you know what is going on inside the auction house then suddenly all your superficial triangles, support levels, OBV, time series, higher lows and volume bars become but minor figures on a frustratingly inaccessible but far more wondrous canvas than I have on my screen at the moment. Cliche alert #1 - the map ain't the territory; the former static, the latter fluid.

Who has taken positions where, when and why and what are they likely to do if x happens?
What needs to happen to allow the fox to feed safely and how (if he accepts the R:R) will he prod things in that direction? Can he do so at the moment? In fact is he feeding right now, covertly, under your nose and at your expense?
What is the cause of (change in) market condition that provoked recent decisions by all groups of participants?
What is true nature of the current move? Is it an emotional high velocity ride, an agonisingly slow grind, a trap or a genuine indication of a supply/demand imbalance that is likely to continue for some time (lots of fuel supplied by all), to name but a few?
Why are we consolidating? Who has to feel pain and where to break out (given from whom to whom stock has been subtly transferred, or not)?
f I wanted higher prices but needed to check that there weren't a bunch of sellers to dampen my profits what would I do?
Where are the past levels of high volume activity and what should one expect when they are touched upon again?
There is unexpectedly rapid trading in a light market, yet the price only moves a tick or two - why? etc.

I could make up abstract, irritating questions like this all day long and fail to answer most of them satisfactorily.. But they are important I think.

People who can genuinely do price and volume do not go for a leisurely cup of tea then glance at a bunch of candles with the volume bars of a certain size below and go ... ah right we've had a volume climax and a hammer so there must have been professional buying so if there's a higher low on lower volume I'm going to buy. This will work quite often, as it might well if there's a LL on lower volume instead, but surely the transactions that form these bars have to be watched pretty much from start to finish for a reasonable conclusion to be drawn? This is a genuine question. While I believe that assessing the conditions cannot be a matter of instantaneous analysis, I like to think that with intricate reasoning and concentrated observation it is possible to watch the flow of present transactions with regard to the background and, if you like, reverse-engineer the smart money (and the numpties, for that matter, for they supply a large % of the fuel). If the truth dawns then the former can be joined at the earliest opportunity, long before the crowd. People who say you can't pick close to tops and bottoms are the ones who don't know how. I would almost give up trading tomorrow if I didn't believe that.

The foxes wait very patiently, let the crowd do their work, often suss out the ongoing mood of the crowd at little cost to themselves and only dive in when conditions are appropriate. Once the mood is judged satisfactorily savage action can be taken if there is little resistance to the likely result. Test in quiet conditions ... demand? Yes, good, already long. No, ok short the bejesus out of it. Markets need fuel to move, to batter the weak hands and transfer their wealth to the strong ... and guess who provides it. The smart coat tails dbp had mentioned are key to being on the right side and laughing at the shakeouts and traps.

Sorry I've totally wandered off the point. :)

I meant to provide an example of 'what was supposed to happen, didn't' to complement Bramble's initial post.

After a reasonable morning, I was caught out this afternoon twice by my poor "past" interpretation of price/volume patterns.

My mistake was of course to view the patterns in isolation and assume that the same pattern will apply in a different context. It won't, necessarily, because the chart can only show a singular dimension, the effect of any number of (often devilishly difficult to detect) causes. Sure, in a simple sense, an up bar means buying pressure won the period. But why? And who? The subtext is apt to stay hidden. Just as the map that draws Everest with lots of dramatic tight contour lines doesn't prepare you for the breathtaking beauty of a first hand view from the top. The trouble is to see it, you have to climb up there. Anyway I labour the point.

My first two longs could have been sweet on another day, in another context. I look for low volume tests approaching the low of a previous hammer, the nearer the low the better. I use a couple of other bell and whistle criteria for "confirmation". In this mechanical pictorial sense, the p/v pats looked good. But it makes me cringe applying such static criteria to a fluid market as I know it doesn't work so predictably and in a strict linear fashion.

I admit that some of the bells and whistles should really have kept me out. I look for divergences with price and they were lacklustre or virtually non-existent. So, a shameful lack of discipline there. Also the wider obvious mechanical context I've included on the chart should have convinced me to consider shorts not longs, at least at that stage of the trend. So in some way, my discretionary filter and comprehension of market condition wasn't far off - rather I failed to act appropriately as all I could see in my greed was the juicy setup in isolation.

Still, keeping the risk (stops) small allowed the third entry to get me to roughly b/e. So all well and good - if sloppy - but not what I really seek: endless robotic repetition of fixed patterns on a page. Or is what I seek impossible? I just hate the idea that trading comes down to a mere appreciation and application of probabilities ... I'm not a quant and I refuse to believe the market must be reduced to mathematical expectancies ... there's no passion involved, no empathy, no real puzzle.

"Define and test your setup" is our mantra. Excellent advice, but what is a setup? It can be anything from a humble RSI 'overbought' condition to a huge confluence of signals, conditions and nuances, that would I suspect be nigh impossible to explain in conventional language, let alone write down in a logical order that a computer could act upon. It is the latter type of setup I seek, the type that varies tantalisingly with the swell of the market. Two of these may look identical to the superficial viewer, but their result can be completely different, pre-empted only by those prepared to dig more deeply into their causes.

I wonder if this distinction is an art / science one. A "creative" divide between the two might explain why so many seem to deny that the pure discretion I am unsubtly hinting at can be done, because they are simply not wired that way. Anyway I witter and lose clarity.
 

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chump

Senior member
2,212 274
"I'm not a quant and I refuse to believe the market must be reduced to mathematical expectancies ... there's no passion "...that's not correct frugi..there's barrels of passion and emotion ,but it should never be yours....numbers (quants) should be your only friend.
 

frugi

1
1,827 126
Thanks for the replies guys.

Mr M as ever you give me hope. :) I'll need half a ton of nootropics before I'm capable of going much further though ... lol

Chumpy, I think you may have misunderstood my "passion" comment, probably because I put it so badly.

"I'm not a quant and I refuse to believe the market must be reduced to mathematical expectancies ... there's no passion involved, no empathy, no real puzzle".

"that's not correct frugi..there's barrels of passion and emotion, but it should never be yours....numbers (quants) should be your only friend."

I was a bit mean to quants on the puzzle front. A clever and diligent statistician with acute observational skills can probably solve some tough market puzzles to an enviable level of intellectual and pecuniary satisfaction.

As for passion, I refer firstly to the desire I have to dig really deep into market structure (a different path from the traditional sharpening of one's edge on an underpopulated place on the bell curve).

Secondly, as you say, the market is often fuelled by passion and this can be of great help to the momentum trader. It is our job to recognise and capitalise on it without joining the sweaty hordes, for even a second. Examine motive dispassionately as mr. m says. I want to smell the emotion and be able to consider and deduce from it, without succumbing to it, and I don't think a quant allows himself this pleasure. All he sees is crunched numbers and niche statistical edges that may fade with time. Quants - please tell me how wrong I am, I really don't intend any offence by this.

If trading becomes a mere matter of daily implementing the same set of statistically-derived fixed rules, then I find that a bit depressing. e.g If my edge is something like pair trading two stocks that have wandered off sufficiently in opposite directions from their VWAP and then all I do is look for these stocks day after day then I am bit concerned about career progression. I want my edge to vary every day, it's acuity being based on a true understanding of dynamics and endlessly adaptable as a result.

When you've found a statistical edge perhaps you pursue it until it is ironed out then the fun is in looking for another one. Perhaps you test and refine several and juggle them as a family during the day. I'd love to hear the opinion of someone who trades like this and why they chose this way way of trading. A passion for numbers, niches and deft mathematics perhaps. Again, absolutely no disrespect to quants, the author of that consistently profitable example, Grey1, of course, or indeed anyone else. I'm not saying any method is better, simply that I perhaps want more art and less math.

Perhaps I should just accept that professional trading is often boring (with the odd flash of passion) and stop being so darn spoilt? After all it kindly provides a playground which one can freely join and leave at any time (to pursue other interests, for instance) which is a very precious freedom indeed.

Sorry for the hijack Brambs, I'll be quiet now.
 

frugi

1
1,827 126
Not at all Tsuntzu, thank you for an enlightening response.

...then it dawned on me that all that time I was waiting for the turning point, I was missing out on a move.

I ought to nail this choice observation to my monitor (next the picture of what happened once when I averaged down with 33 lots). You have summed up the biggest flaw in my trading and it is something I need to sort out. I have an irrational dislike of looking for continuation signals once a trend has been established and so then I do what I did yesterday, look too early for a reversal. Still, as I am mainly a scalper, I often get away with countertrend activity, although I make my life harder in so doing.

I also realise that because I was looking for (premature) longs I was ignoring the short signals that you mention, such as the drying demand / hanging man / engulfing bear, not to mention the down trend itself, one following a dramatic reversal off the highs that was likely to be fierce, no less. It is curious how the mind can filter out what it doesn't want to see and that is also something I need to work on. Had I been looking for shorts I bet I would have leapt on those signals. Silly mind bias.

By "tick the new low" do you mean drop it a tick to see if there are just a few noobie stops (if so reverse) or more serious supply there (if so excellent you're already short)? I wish I could do enough size to play those games with the big boys. :)

Had a much better day today fortunately. The remainder of yesterday's final longs paid off.

Cheers for the post I appreciate it.
 

frugi

1
1,827 126
I would use a range estimation from the profile and a longer time frame candle chart to find potential support levels and then use that with my experience of watching volume distribute to see if I had nailed a good low. Couldn't write it down as its not a fixed formula, i think lots of getting it wrong helps you 'feel' after a while when you have it.

Amen to that . Fairly simple mechanical observation / risk management combined with the elusive intuitive discretion that only experience can bring. Kinda what I was banging on about earlier at great length and heartening to have my naive market views backed up by two pros. Thanks to the pair of you. :)
 

dbphoenix

Legendary member
6,953 1,260
mr.marcus said:
..so the question is ......

.....would you take the pullbacks themselves and seeing the lack off real long intent...quickly close and reverse ...

....or would you just look for shorts and not even try to pick the reversals..and pullbacks.

....or would you scalp both sides equally for what they are and respect the trend

.....and ultimately how would you define the turning point where the buyers are back in control?

mark j


...to add frugi....once you start just looking for the turning point ...you tend to close your mind off to the flow market....whats helps is...yes you have to have a conviction when you take a trade....but one...it should never become a set in stone bias....2.....look for signs to be proved 'wrong' more than proved right....specially in a trending market....if not when you should be back in with the trend ...your holding counter trends positions....starting to live on hope rather than probabilty ..and it can become a matter of "not wanting to let got " of a trade....ego can creep in without even knowing....then you are in a cycle of counter trending...becomes frustrating and tense....not good.

All of which is the point of defining the setup, which I thought frugi had done by following Ross. Even though Ross is based on Dunnigan and Wyckoff (who do a better job of explaining the setup), none of the three would counsel trying to catch the bottom in this way.

This is not a question of hindsight. In fact, one advantage of defining the setup is to avoid these hindsight issues. The setup either fits the definition or it doesn't. Whether it's hindsight or real-time is immaterial.

The focus should not be price-volume pairs or even price-volume patterns. Both price and volume are continuous, and focusing on snapshots in time prevents the trader from being in the flow of price and volume and being available to detecting whether the pressure is on the buyside or sellside (and, no, I'm not referring to LII here). One must also remember that any given candle will exist only in a given time segment. If one uses shorter or longer time-segments, or chooses a different starting point, the candle disappears. The information, therefore, is contained within the flow, not within the snapshot.
 

frugi

1
1,827 126
DB thanks for the post. I am with you on the movie not snapshot point. But I am uneasy with the contrast between rigid and fluid. Is it honestly possible to have a rigidly defined setup - one that you could write down as a series of checks and steps - that can take full account of the flow and adapt judiciously to different conditions?

Take a simple 123 setup - yes, either it is there or it isn't, but only some of them will work and filtrration of the bad ones is surely a matter of context beyong the reach of the setup, which is where discretion must come in?

One can add some fixed AND conditions to the setup (e.g was there a TICK divergences on the #1 point) to help select the good'uns but even so I feel the setup will still be somewhat arbitrarily forced onto the present market condition. Perhaps my definitions are simply not sufficiently encompassing but could be so if I worked smarter at them and had more skill. Or perhaps this arbitrariness does not matter: you play the balance of probabilities and come out ahead despite the failed setups. That is certainly a good position to be in, though I crave more. More understanding, more ability to adapt, more accuracy, more out of a move etc.

Either way it's a joy to have a discussion about trading for a change. :)

mr. marcus said:
.look for signs to be proved 'wrong' more than proved right....specially in a trending market...

Nice tip sir.
 
 
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