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

[dbphoenix]

Originally Posted by frugi
Regardless of whether I am watching a 60, 30, 5 or 1 minute bar form in real time I was wondering whether it is necessary to see every single tick of data that forms part of that bar, or whether a snapshot every second is sufficient? Sometimes I am sure I miss important clues because I am not seeing every trade go thorough.
Short answer: no, you do not have to see every tick unless you're trading ticks and you do not have to see every trade "go through".

I've learned my lesson regarding LII and T&S and won't be getting into it. Too many people just love it/them and can't imagine trading without it/them. That's okay by me. Whatever floats one's boat.

However, unless something shows up on the price bar as a completed trade, it's not your concern, assuming that your strategy involves making money out of the movement of price up or down. If you're concerned with assessing the balance between buying and selling pressure, your primary concern is the movement of price. The bar interval you use to display that movement is merely a choice. It has nothing to do with the price movement itself, that is, the price movement is independent of the bar interval. Technically, you could (and might, some day), use just one bar for the entire day and watch the little notch travel up and down, like a thermometer, which is more or less what traders did before real-time charts.

As for the clues, most intraday traders use some bar interval other than daily because they don't have the habit of detecting swing points and S/R without the individual bars (early traders such as Livermore had no choice but to develop that sense).

But these, along with trendlines, are merely a convenience, like the width of the line one chooses to note a highway vs a road. The movement of price is the focus.

 

[dbphoenix]

Originally Posted by rhk
Hi Dpb,

When u say "sensitive to the push/pull", do u mean the buying pressure verses the selling
pressure.

Is this shown on the chart by the "ease of movement" in one direction compared to the opposite direction. (eg up swing vs down swing)

Is this shown by the the ease of movement of a swing compared to the last swing in the same direction?

On an individual bar basis it would be the size of a bar and how it relates to the previous bar/bars.

Many thanks RHK

1. Yes.
2. Yes (assuming you're not talking about the indicator)
3. Yes.
4. Yes.

 

[dbphoenix]

Originally Posted by JumpOff
Ok- Early on in this thread I thought you were talking about how important volume is, because it is the volume of buying and selling pressure that cause price movement.

Are you saying that after gaining a certain amount of familiarity with real time trading, you can pretty much tell what's going on with volume, just by the ways the bars are forming? By looking at a chart you can "know what kind of volume" was behind it - the way a tracker can look at tracks in the sand and say, "the dog was trotting along looking left at this point, then it stopped here, then sprang forward here and pounced."

Are we getting to plain old pure price action...?
JO

You're asking several questions.

Yes, volume is important. But the volume bar is siimply a way of illustrating volume action. What's important is the volume itself, not what's used to represent it, just as what is important about price is the price action, not the bar interval chosen.

And, yes, you can get a pretty good idea of what's going on with volume by the way the bars are forming, but not of course in hindsight. That's the difference in watching them form and reviewing a static display. EOD traders, of course, don't have the luxury of watching them form [Note, 2008: this post and other posts making this comment were written before "replay" became available], so they require some sort of representation of volume such as the volume bar. A gardener has a different appreciation of a rose than someone who buys one at a stall.

And one can eventually get to plain ol' price action, if one is watching it in real time, but since volume of some sort is required to move price, it helps to understand the nature of volume. One can also admire a car in motion, but in order to understand why it does what it does, one must know something of the accelerator and the brake and the effects of inclines and declines, as well as abrupt encounters with immovable objects.

Trying to interpret price in hindsight without volume is possible, but one is working with a handicap, like beating egg whites with a knife.

 

[dbphoenix]

Originally Posted by Splitlink
dbphoenix,

With due respect, I find your interpretations are hindsight. There are stacks of similar chart signals that will give opposite results. I have been trading for many years and have never got to the bottom of volume.

To quote Brian Marber in Jim Slater's book " Shares can fall on low volume, and they can rise on low volume as well. The former is supposed to be good news and the latter, bad, but neither cope with the fact that the share has undoubtedly moved one way or the other."

To me, the study of volume clouds the issue and I venture to suggest that my own signals would get me into and out of trades on your charts without using it.

Regards Split

All charts are hindsight, particularly annotated ones. That's the nature of charts and annotation.

As to "good" and "bad" volume, I've pointed out many times that volume reflects only the number of shares traded. What matters is the effect on price, not the quantity of volume per se.

And I'm sure your signals are just fine. You'll note the "volume" is in parentheses in the title of the thread, since what moves price are buying and selling pressure. Volume is simply a manifestation of this dynamic.

I thought I'd give my take on this buying/selling pressure issue.

Volume alone means nothing. But volume (regardless of how much of it), with price movement, means "pressure".

If there are trades taking place, and the price is moving up, then there is pressure to the upside, and also the reverse is true, trades + down price = downward pressure.

For me, the volume picture is of the most help at seeing potential exhaustion, or a confirmation of continuation. Other than that, price action is foremost on my decision tree.

 

[dbphoenix]

Originally Posted by TheBramble

So how do we use this information?

Knowing that price is moving up indicates buying pressure - at that moment or timeslice only. We can take a position that the market has a higher probability of doing what it's currently doing in the next bar than anything else. But where does the sophistication come in? What additional knowledge can be applied to the current situation? Support & Resistance are obvious considerations. Supply/Demand partially exposed by Buying/Selling pressure. IS volume action the key indicator then?

What other factors to we use to determine if this will continue, slow, stop, or even reverse?

If by "sophistication" you mean where do you set price targets, stops, etc, that comes from developing a thorough familiarity with the territory rather than coming up with increasingly elaborate maps. If, for example, sellers can't find a trade in one direction, they'll look for it in the opposite direction. And they'll continue to fish until they catch something. If they catch something, and the catch attracts attention, it's up to you to determine the criteria for entering the move, as well as the criteria for exiting the move if it turns out to be short-lived.

You have no way of knowing whether a given move will continue or not, nor do you have any control over same. But you can determine the criteria for deciding when to scale out or exit. You always have absolute control over that.

 

[dbphoenix]

Originally Posted by JumpOff

In a market where 90% of the traders are buying/selling things that don't exist as long as they agree on the price (e.g., spot, futures, indexes and other derivatives), do all of the same stock type principles apply? Does the speculator add more than just liquidity? Is there a tipping point where the speculators involvement changes the nature of the game?
JO

The demand/supply thing is only a step, since there are obviously many cases in which supply is not finite. Actually, it isn't even finite with stocks anymore since nobody holds anything. But that's another subject.

Most beginners (and some not-so-beginners) don't fully grasp the nature of the auction market, or even that the stock market is an auction market. Since trading by price movement requires a certain perceptual and conceptual view, it's seemed best to me to start with the auction market and the law of supply and demand since this law is one of the few absolutes (perhaps the only one) in the stock market.

Moving from an understanding of the dynamics of supply and demand balances and imbalances and how they move price also seems to me to be a necessary step before getting into buying and selling pressure. Perhaps not. But given the number of people who lose their way before getting to this point, which I feel is essential to understand before developing an intuitive sense, I doubt that jumping right into the nature of buying and selling pressure would be very productive.

So, yes, the principles apply. But there's more to it. Unfortunately, to understand that "more" requires a certain amount of experience, i.e., the experience of having watched many charts and a great deal of price action as a participant and not just from some book or article. Given the amount of perceptual and conceptual reconstruction that is usually required, it's no mystery that most people would rather just buy when the blue line crosses the red line and sell the opposite.

I should also point out that the "operator" (or equivalent term) referred to by Wyckoff, Livermore et al and in the Demand/Supply file is today a somewhat irrelevant and quaint artifact of days gone by. Given the hundreds of funds, the thousands of investors, and the more thousands of traders, manipulation is far more difficult than most people believe. The "operator" is primarily a conceit to illustrate and people the process whereby stocks (and thereby markets) are accumulated, marked up, distributed, and marked down. There are no groups of shadowy figures lurking in the half-light, waiting to pull the rug out from under you and run away with your money, chuckling gleefully. Believing that there are is the primary reason why so many novices try to "catch reversals" where no reversals exist.

However, it is naive to believe that brokerages issue buy ratings on stocks they don't already own or that they issue sell ratings on stocks they haven't already sold. The process of accumulation, markup, distribution and markdown is as absolute and inescapable today as it was a hundred years ago and before. The "operator", however, is the market itself.

 

[dbphoenix]

Originally Posted by kevin546
Dbp

Do you make use of volume or just rely on price itself. Your comment concerning trading the present , could you expand on this please.

My knowledge in this field is rather limited. I do not use volume partly because you cannot rely on what is a sell and a buy and the manner in which some trades are entered into the market IMHO.

I try to apply price acceptance and minus development from the price bars and rely on pivots from price.

Kevin

I use both price and volume. All trades are both sells and buys, so I focus on imbalances between buying pressure and selling pressure.

Trading in the present requires defining one's setups and trading those setups after having tested them to determine the probabilities of one outcome occurring over another. It doesn't involve guessing as to what's going to happen at some point in the future.

 

[dbphoenix]

Originally Posted by rhk
Hi Dph,

I have attached a chart with some notes and a Question.
Can u comment??

The way I see buying pressure and selling pressure is as a "momentum of price movement",
as "the ease of movement" and path of least resistence.
Ways this shows on a chart are , price bar crossover, bozos, dojis etc.

Am I on the right track??

The question I have asked on the chart is about the possiblity of the buying/selling pressure
dynamic giving a failed signal.
Can u comment on what I have written on the chart.

Many thanks Roelof

Going over this stuff in hindsight is easy because one can say Oh, well, of course. However, I agree that you were right to at least hypothesize that selling was becoming exhausted, not so much because of the price bar since it closed at the low, but rather because of the quick rebound in the next bar. If you have the option of showing ticks, this may be easier for you to see if you toggle your chart to them. Focusing on "bars" can be a trap as it encourages you to think of them as indicators rather than arbitrary divisions of time.

And you are correct about the lack of enthusiasm for the rally. Note that there is a zone of trades from 0940 to 1030/35. This is where the subsequent rally stalls. However, it's important to understand that demand is not sufficient to push price past this zone, regardless of the number of buyers. In other words, low volume in and of itself is not the determining factor. In the end, the buying pressure apart from the number of buyers is insufficient to push price past that zone. That plus the lack of buyers kills the movement.

As for your bar C, avoid making too much of any given bar. This bar will exist as such only in this particular bar interval. If you were to use a 1m chart or 10m chart, it would look quite different. Having said that, the bar is not a bozo since it doesn't close at the high. Instead, it fails to hold at the high and drops back to that zone. If the pressure were on the buyside, it is here that it would most likely show itself. Instead, price waffles around and fails.

As for the "failed signal", I can't provide an answer since I don't know what you're using for signals, so I can't say whether there is a signal failure or not. What I see is that buyers can't push price past 17, much less reach the opening high. This creates a lower high, moving the pressure to the sell side. It would be difficult to fault using this as a "signal" to go short.

 

[dbphoenix]

Originally Posted by rhk
Hi Dph,

Thanks. I've quoted the part of your reply that answers what I was trying to ask: "If the pressure were on the buyside, it is here that it would most likely show itself. Instead, price waffles around and fails." That's what I meant by failed signal. Do u use this failure as a trigger to go short.?

In my chart, pt. C seems to be where early-bird shorts with tight stops got taken out and then the mkt went down. Seeing that buying pressure failure, would that be a logical place to go short? Could one expect a bigger move with that buying pressure failure??

Again, thanks, I've learnt much.

Roelof

That's where the rubber meets the road and the beginner stops being a beginner. It's up to you to find similar "patterns" in other charts, determine why price sometimes reverses and sometimes resumes the original direction, determine where the best entry is that will make the probability of a reversal high enough for you, determine the narrowest stop you can use without getting shaken out (and the conditions under which you'd take the opposite side of the trade, i.e., fade yourself), determine what the most reasonable price target is. Then forward-test it using old charts, then paper-trade it in real time.

Seems like a lot of work to answer what may appear to be a simple question, but that's what it takes to gain confidence in your abilities as a trader.

 

[dbphoenix]

Originally Posted by JungleJim
Can you explain what a bozo pattern is . . .

A bozo is just shorthand for "marubozu". I picked it up from somebody else . . .

 

[dbphoenix]

Volume is only a piece of information. If you're trading an instrument that does not have volume, don't worry about it. Price is king anyway.

In currency pairs, you have S/R, S/D, trends, trading range, price, and the speed in which trades are being made. Plenty enough information to make a choice on a trade.

Trade what you can afford; it all takes time.

How do u perceive "the speed in which trades are being made"??

Many thanks, Roelof

When price approaches S/R , I view the main trading page, and observe the price change window. In that window, I can see how often the price changes.

For instance,starting around 8:00 am NY time, when the price is in between S/R, price will only change about every 7-10 seconds or so. But when price approaches S/R, price will change every 1-5 seconds or so ( just guesstimating the time).

Just watch, and you'll notice a change in speed, depending on where price is at, time of day, and pending econ. reports. Observe the action of the price bar while observing the change of speed, and notice how the price bar reacts. Otherwise, It's kind of a waste of time.

Wyckoff referred to this as well, though he didn't go into any great detail. Basically, it's similar to walking into the kitchen in the middle of the night and flicking on the light to watch the cockroaches scatter (or, if you live in a cockroach-free locale, running into the square and scattering the pigeons). At bottom, this is what separates true S/R from synthetic or genuine imitation S/R. If nothing happens at what one thinks is S/R, then by definition it ain't S/R. There needn't be fireworks, exactly, but there has to be some interest. Otherwise, the probabilities of price moving one way or the other are shot all to hell.

 

[dbphoenix]

Anyone care to have a go on hindsight where they will enter and why?

I am trying to learn. Thanks

You've done a nice job of locating most of the potential and realized levels and zones of S/R, but you're asking the wrong question.

If you trade the long side, you're going to want to enter at or near a point at which the downtrend turns and becomes an uptrend. In order to do that, you're going to have to determine what constitutes a trend, what constitutes an uptrend and a downtrend, how to determine trend strength, how to determine trend change, how to determine trend reversal.

Once you've done all that (which is much simpler than it sounds if you can draw a straight line), then you have to determine what your risk tolerance is, and many people can't do that, unfortunately, until they've begun trading with real money.

But, assuming that you're aggressive, you'd want to enter at the first indication of trend reversal. You would not wait for confirmation. As for stop placement, it helps to have a very clear distinction in mind between aggressiveness and recklessness.

On the other hand, if you're more conservative, then you'll want to wait for some sort of confirmation, such as a higher low.

Once you've decided all that, then you go over your charts and you find those "setups" which meet your criteria and determine whether or not price actually does move in the desired direction. If it does more often than not, then you may be on the track of a reliable setup. If it doesn't, then it's back to the drawing board.

Asking someone where he'd enter makes sense only if you share his goals, his objectives, his timeframe, his risk tolerance, his price targets, his stops, and so on. Granted that if you received many replies, you might be able to get a sense of the gestalt of S/R, trend, demand/supply and so on and proceed from there, but it's highly unlikely that you would get enough replies to your question to do so. Instead, you might get at most one or two, and instead of conducting your own investigation, you'd test somebody else's assertions, which is pretty much the same thing as trading somebody else's strategy.

Therefore, go back to your chart and find those levels or zones which look to you to be the most propitious levels or zones to enter, then figure out how you would do so in real time. Then you can begin developing some criteria for yourself.

 

[dbphoenix]

Originally Posted by Southpaw46

I think one might make an argument that professionals are less likely to be caught on the wrong side of the market. The daily experience of seeing price wiggle around makes it less likely that they will be "shaken out" of a position on a on a transient spike up or down. Retail traders on the other hand seem to exhibit several predictable characteristics as follows:

1. They don't use stops, or

2. If they use stops, they are not set wide enough, and

3. They may look at a chart, see a quick spike in the wrong direction, and find that they no longer have the courage of their convictions (lack of experience). The result is they enter a market order to bail out.

I suggest that wider stops are not necessarily the answer, that re-examining one's entry tactics may be more pertinent. Wide stops can blow out an account just as surely as no stops at all if no consideration is given to the probability that the entry will be successful.

As for convictions, I don't see courage as an issue so much as whether one ought to have convictions or not. Since the outcome of any given trade is unknowable, there's really nothing to have any conviction about other than to follow the trading plan. Having convictions can in fact be one of the most damaging characteristics than one can adopt if they persuade him to trade what he thinks rather than what he sees.

 

[dbphoenix]

Just for Fun

1. $ makes a LrL and closes at the low, but there's no increase in trading activity. The next day, trading activity increases, $ rebounds and closes near the high (buying pressure exceeds selling pressure). The next day, trading activity increases yet again and $ tries to make a HrH, but falls back below the high of the bar. Trading activity declines dramatically thereafter, but price rises anyway. Why? Selling has exhausted itself.

2. Trading activity increases from the 2nd to the 3rd week in October and $ declines. Selling pressure is increasing. However, when $ tests S, trading activity increases and $ closes at the high. Buying pressure gains the upper hand. Volume then declines, but price rises anyway. Why? Selling has exhausted itself.

3. . . . ?

 

[dbphoenix]

Here goes, I will start my analysis in the last week of Feb, at the high.

Up to the last week in February, price has been rising nicely with little volume, buying pressure clearly overwhelming selling pressure.

In the last week of February, volume increases, buyers run into sellers and the sellers win out, with $ closing down for the day altho not at the low - $ is clearly running into some form of overhead resistance.

The next bar volume increases again, and sellers are again clearly in control, altho the buyers struggled to hold prices up - after all this increased volume, we will be wondering which side is spent, are sellers done or are buyers done.

The second week in March it seems clear that the buyers are done, sellers are in control with price closing at the low .

The third week in March $ runs into support at 30 (formed in November & December, marked on attachment), sellers are in charge and then buying comes in and price closes well off the lows at support - $ is still slightly down for the day, so selling pressure still in charge, however not as dominant as before.

The last week in March volume is well down, buyers try and push price higher, however it takes very little volume to overwhelm them and price again closes down on the day.

The first week of April sellers come into the market in size, buyers who are underwater may be selling their positions when support is broken, and the result is a nice long down bozo on good volume - thinking possible selling climax here

A note on support levels here, i would say that the zone between slightly below 28 to 26 represents a solid support zone, and this down bar closes right in the middle of it.

The second week of April buyers come back in and try to defend $, however $ is easily beaten back down by sellers, and although $ is up on the day, buying pressure & selling pressure are pretty equal here. Another point, if the previous bar was a selling climax, we would expect to see less volume on this bar (I think??), and buying pressure asserting more control, so although we cant rule it out, the probability of the previous bar being a selling climax is reduced.

The third week of April is another high volume tussle, with niether side gaining advantage.

The fourth week of April, volume drops significantly, $ rises nicely, and it looks to me like sellers are done, & buying pressure is once again dominant.

The first week in May proves this thinking wrong, as selling pressure once again dominates, volume is still high, but not climactic, and we again have a nice bozo down, although not as big as the first bozo - not sure how we could have foreseen this?

Of significance here is we have a lower low, we can draw a tentative supply line in.

The next 2 bars again represent a tussle, buying pressure seems to be coming back in.

Although buying pressure does seem to be coming back in, the downtrend is established until we get a higher low.

Apologies for the length of this, got carried away, DB plse delete/edit if necessary.

rgds

gavin

not sure how we could have foreseen this?

Depends on what you mean by "foresee". Given the length of the rise, it's not unreasonable to expect S levels to be tested more than once. And if there are multiple S levels, as in this case, particularly if they are close together, as in this case, one has to be prepared either for a bounce after that April bozo or a further test, in this case of the much more important S level at 27.

What is important to note here, though, is that although the test in May represents a lower low, the volume on the lower low is less than on the previous low in April. This suggests a certain exhaustion in selling, and represents the same dynamic as the charts I recently posted showing the May 2 buypoint. This does not mean that price will rocket from there; it may only seek equilibrium for a while. If one can detect the signs of this search for equilibrium in real time, he can avoid getting caught in chop.

 

[dbphoenix]

The "macro" chart is, for now, of interest because of the context, and the preparation for the advance. This will be revisited.

As for the area within the box,

1. There is nothing particularly climactic about this, but the angle of ascent is visibly more severe than previous advances. It is perhaps for both these reasons that $ hovers here for more than a month.

2 & 3. Note that within these groupings, the volume is relatively stable while remaining strong. $ is also relatively stable. This suggests a certain "jockeying" for position. A tug-of-war. This is apparently resolved to the downside the second week of April, but buyers rush in the following week to propel $ back toward the previous week's high. This is met by further selling, but the trading activity is consistent.

4. . . . ?

 

[dbphoenix]

To All Those Who Are In A Hurry:

For some reason, most of us feel compelled to do something about whatever it is that we're studying. But gathering data has a purpose in and of itself. Don't concern yourself with how you might profit from whatever it is you're observing. Focus on understanding it. Give objectivity a chance to take root.

 

[dbphoenix]

I will have another bash at area 4 in DB's post #36 - hopefully a more concise one...

The last week in April volume dips, buyers & sellers remain evenly matched, however in the next week sellers overwhelm buyers on slightly increased volume, price closes very near the low, however we are heading into potential support area now, illustarted by DB's horizontal lines in the post.

The second week in May, price opens even lower, however buyers come in during the day, volume picks up, and prices rise, closing slightly off the high indicating potential weakness.

One point to note here is that in the decline to support volume has not been as high as the volume in the big bozo down first week of April, suggesting sellers may be drying up (or buyers potentially, however looking at price action at the support level would indicate that sellers were the ones running out of steam)

The last bar is a nice strong bozo up on less volume, indicating that selling is done.

2 more points to watch here

1 - If we had drawn in a supply line this line would be broken to the upside, indicating potential trend change.

2 - 42 is a potential resistance area ( was where the last swing high formed), need to watch what market participants do here.

Let me know if i am completely off target, thx

Very nice, esp the following:

One point to note here is that in the decline to support volume has not been as high as the volume in the big bozo down first week of April, suggesting sellers may be drying up (or buyers potentially, however looking at price action at the support level would indicate that sellers were the ones running out of steam)

 

[dbphoenix]

Eventually, this becomes almost a drill. The principles are what they are, and applying them becomes almost automatic.

1. As an important test approaches, trading activity increases. Buying pressure wins the day (effort), as can be seen by the relationship of the high to low in the bars (result).

2. Trading activity here is far less than at "1", and $ makes a HrL, suggesting that sellers aren't interested in pushing $ lower (if they were, trading activity would be higher). As it is, buyers are able to retard and reverse the decline with little effort. However, they are not able to do much more than make a new swing high.

3. The third time is supposedly the charm in some circles, and S is supposed to break, but buyers have other ideas. Loads of trading activity and an almost climactic selloff, but $ ends up off the low and can be propelled back to the swing high with almost no effort at all.

4 & 5. Trading activity tapers off as $ reaches R. This is not necessarily a bad thing. $ may be preparing for an advance. But trading activity increases on the way down to test S, and buyers lose their resolve when the time comes to fish or cut bait. $ fails to break through, telling sellers that their time may have come.

6. . . . ?

 

[dbphoenix]

I'll have another go at area 6 from DB's post #39, practice makes perfect...

After $ has moved in the tight range from Nov to Feb, Selling pressure dominates in the first week of Marchand price breaks below support on high volume. This breakout is followed through on the next bar on even higher volume, forming a nice bozo down ( appears that buyers who were long anticipating the upside breakout are throwing in the towel here).

Downside momentum is retarded over the next 4 bars, volume decreases, as we approach potential support.
Price rises on what has become average volume, and the last week in April buyers & sellers come in again in size, however niether side is dominant and price forms a nice doji.

Of note at this point is that $ has formed a higher low than the lows in areas 1/2/3 - yet to be seen if this holds, & we geta higher low after this.

After this doji, selling pressure dominates, however price closes off the lows, next bar buying dominates (if we smoosh the 2 bars together we have a nice hammer)

In the last 2 bars $ price rises nicely on low volume - are sellers done? - we shall see what the reaction is as when we get to potential resistance, which is not too far ahead.

All of this occurs in what has become a nicely defined range between 27 and 30.5

Again, very nice. Any suggestions on why I put a question mark after "Tst"?