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

[ChartMan]

Excelent Steve! My perfect trade is one where I recognise a setup that has a tradeable minimum target.
On Volumes, I have noticed that a decline in volume ( almost to the point of drying up) often precedes a nice move. So I would say low volume can be important sometimes.

 

[babymush]

Wonder if this chart can be analysed Price, Volume and Support and resistance in

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

I am trying to learn. Thanks

 

[Porks]

Enjoyed your post Steve.

I'd query a couple of points though:

- A low volume bar shows lack of professional interest which can be an important signal are key turning points.
- There's a buyer for every seller. I agree, but its the buyers and sellers that are waiting in the wings which is the supply and demand pressure yet to be realised.

- The markets work on supply and demand but not like were taught in school. Its not demand that causes higher prices but higher prices that cause demand. Not supply that cause lower prices but lower prices that cause the supply (as the weak holders panic and dump our holdings when we hit our stops or are forced to by margin call etc).

Most of the activity in the market is professional activity, and they manipulate us in every trade we take.

In other words, MARKETS DON'T MOVE, THEY ARE MOVED.

A successful trader spots this manipulation through price/volume action and piggy back the pros trades.



Porks

 

[stevespray]

Porks…

I take your points. We need to be careful here. You make a number of implied ‘known facts’. Firstly you speak of ‘the pros’ like they are a crowd of people which we know to exist. You need to define ‘pro’. Do you simply mean ‘a larger trader’, does he have to work for an institution ? Is he always right ? Does he always make money ? Do the people who bet against a ‘pro’ always end up losing ?

Psychologically the use of the word ‘pro’ will paint a picture in peoples minds. I feel this is bad. A ‘pro’, regardless of how you define him, is purely and simply a market participant just like you or I.

You also state that ‘markets don’t move, they are moved’. I am missing your logical point here. The price that the market is now trading at, by that I mean the bid and offer as apposed to the last traded price, is the current value which is agreed by the market as a whole. The bid and the offer can move without trade taking place because the bid and the offer are just an agreement within the market of current value which discounts all information which is available. My point is that it is very easy to perceive, especially in a liquid market like say in front month S&P500 Futures, that prices are rising simply because participants are buying all available contracts on the offer. By jumping to such a conclusion no allowance is made for the fact that prices can rise because participants are no longer willing to sell at a level they were willing to sell at 5 or 10 seconds ago. Participants can and do remove orders from above and below the markets and this does also have a bearing on price movement, however this fact will never be shown up directly in a study of volume because implicitly a study of volumes shows a record of trades that have taken place and not trades which would have taken place if participants perceptions of value would not of changed. Some would suggest that this could loosely be termed ‘easy of movement’. People automatically assume that an increase in ‘buying pressure’ will cause a rise, however, a decrease in ‘selling pressure’ will cause the same. A decrease in ‘selling pressure’ (caused by participants refusing to offer supply at the current level), which subsequently causes a rapid rise in price, will therefore not necessarily be reflected in a volume study because the move in price action is amplified by a very short term loss of liquidity.

Whilst I can, to some extent, see you point regarding market prices moving higher or lower causing demand / supply I would suggest that this is only true in a very small percentage of the overall time which a market is open. The word which describes such behaviour is ‘exhaustion’, or, on a larger scale, like after bull and bear runs lasting months, it would be described as ‘capitulation’.

There are a few more points which I would like to mention but I have to nip out to a customers.

Back laters,
Steve.

 

[Porks]

Steve,

'The price that the market is now trading at, by that I mean the bid and offer as apposed to the last traded price, is the current value which is agreed by the market as a whole.'

Yes, but that is because the market as a whole has been manipulated into this current value.

When prices are marked down rapidly to test whether floating supply is still present, who is it that's marking the price down ?

When prices are kept artificially low while accumulation is being completed, who is that's releasing supply into the market to keep it from raising ?

Its the pro's (MM, specialists, syndicates, fed etc)


It sounds like a conspiracy because it is a consipiracy. There's far too much money involved (Trillions of $) for it not to be.

We all know that important announcements can affect price, interest rates may climb and prices fall, bad news on a stock, but its naive to believe that the pro's haven't positioned themselves WITH FULL KNOWLEDGE OF WHAT THE NEWS WILL BE beforehand.

Bad news is used as an execuse to lower prices, but who's doing the buying at the bottom and profiting from the subsequent rise in prices(and who made money shorting on the way down) ?

The market isn't an efficient auction, the market is manipulated to meet the objectives of the professionals.

I may be wrong, but I bet every day I trade that I'm not.


Porks
The Markets Don't Move, the Markets Are Moved.

 

[sulong]

It sounds like a conspiracy because it is a conspiracy. There's far too much money involved (Trillions of $) for it not to be.

Porks,
Not only are you off topic, but you're adding some unnecessary diversions to the task at hand.

It just does not matter if there's a conspiracy, or who's behind it.
All that matters is how traders interact with each other, at certain price levels, that's it.

 

[bracke]

stevespray

"I feel that a few people here maybe under the impression that observing a series of price and bars will indicate whether the market will head up or down. This is not the case. All we can do is take a trade and then observe whether the subsequent action is in keeping with a market which we feel should be reacting in a certain way. If it is in keeping then we manage our position, if it is not in keeping then we close our position"

I am one of those people but I would express it slightly differently.

I am/was under the impression that price/volume analysis largely included TA of charts including use of price & volume bars to determine best entry and exit and thus whether the price was heading up or down.

The statement that "all we can do is take the trade etc" appears to suggest that we enter the trade on an ad hoc basis. I am sure this is not what you mean but your statement gives that impression.

Surely we take the trade based on the price/volume action which means observing the price/volume bars

Regards

bracke

 

[dbphoenix]

Steve,

'The price that the market is now trading at, by that I mean the bid and offer as apposed to the last traded price, is the current value which is agreed by the market as a whole.'

Yes, but that is because the market as a whole has been manipulated into this current value.
. . .

It sounds like a conspiracy because it is a consipiracy. There's far too much money involved (Trillions of $) for it not to be.

We all know that important announcements can affect price, interest rates may climb and prices fall, bad news on a stock, but its naive to believe that the pro's haven't positioned themselves WITH FULL KNOWLEDGE OF WHAT THE NEWS WILL BE beforehand.

Bad news is used as an execuse to lower prices, but who's doing the buying at the bottom and profiting from the subsequent rise in prices(and who made money shorting on the way down) ?

The market isn't an efficient auction, the market is manipulated to meet the objectives of the professionals.
.

Porks, if this is what you've learned from what I've written, then we've wasted each other's time.

You've made your point. If pressing it is important to you, please start your own thread.

 

[Porks]

Sulong,

Sorry I don't agree this post was off topic, the topic is price volume etc and understanding the market helps, in my opinion, understand price/volume relationships.

Can't see how you can trade without this understanding, its improved my trading no end.



Porks.
The Markets Don't Move, the Markets Are Moved.

 

[Porks]

dbp,

Whoops, crossed threads there.

Its your thread, a bit harsh but thanks anyhow,

Porks.
The Markets Don't Move, the Markets Are Moved.

 

[stevespray]

Porks…..

I’m sorry, I simply don’t agree with you. The argument doesn't hold water. Firstly, despite what most may think, the so called ‘professionals’ make appalling returns from the markets. Generally, the only thing that saves them is that fact that markets continually rise in the longer term. Professionals make their money from a) ridiculously high management fees, and b) a huge topslice of profits that they do make when they do from, time to time, get it right. Added to that, I agree, is a certain amount of dubious behaviour such as buy and sell notes issued by various brokers – this again appears uneducated as quite often these notes appear after the balk of relevant moves – ie it’s more kneejerk based on hindsight rather than foresight, however, people still see to like paying for this service and therefore the ‘pros’ are, I agree able to benefit, but only to a small degree.

The market is an auction and as such is incredibly difficult to manipulate as you have suggested. Again the argument doesn't hold water. You have stated that prices are kept low while accumulation is being completed by professionals releasing supply ?? This makes no sense – they are either releasing stock or accumulating, they can not possibly be doing both can they.

Again, the problem is peoples interpretation of what ‘accumulation’ is. For the most part I would suggest that the word can only be used in hindsight. That is to say that one looks back at a daily chart, covering say 9 months, and then says “ah yes, looks like a clear case of accumulation back in March and April”…this is of no use now its October !
Therefore, I feel that the word ‘Accumulation’ relates almost purely to hindsight rather than foresight.

I don’t think that there is much mystery surrounding what happens at a classic ‘accumulation’ phase. Generally it occurs when a stock is in a range. When in such a range the medium term balance of holders is just slowly changing. The weaker holds are slowly shaken out, purely through price action I may add, and the people that these weak holders sell to are stronger holders who see value at a certain level. The stock remains in a range for a while because it becomes easy to trade. However, after a period of time, the balance of holders and sellers is such that the range fails. This in turn causes the range players to cover putting further directional pressure on the stock.


Bracke….

Point taken.

I guess it all comes down to what you find is useful. As I already pointed out, something is only useful if you can use it to help your trading profitability. For that to be so you need to be able to convert a potential ‘signal’ or ‘setup’ into several meaningful variables such as ‘entry level’ , ‘stop level’ and ‘target level’.

I agree, I may have worded it badly. I guess what I meant to suggest was…….Not every bar you see formed is going to be interpretable and therefore present a trading opertunity. In my opinion, all you can reasonably do is wait for a bar to form which you feel is significant. With that in mind all you can go is act once the bar is there. Hopefully the forming of the bar will represent a situation setting up which produces a high probability event.

For an example I’d like to mention a method that I find works for S&P Futures. No rocket science required here I’m afraid !

1) 5 Min chart with Volume attached for ESZ04

2) Ignore the opening 30 minutes unless volumes drop off quickly.

3) Wait for a bar to form which has a large move relative to the bars around it as well as making a new local high / low.

4) Examine the Volumes passing through on that bar. They should be very high.

5) Consider that the bar formed is an exhaustion bar. Look to play a reversal. Try and enter a reverse trade at the best price possible. In order to do this you may have to enter the trade before the bar has finished forming.

6) Set a sensible stop at the maximum loss you are prepared to encounter.

7) Now watch closely but remain relaxed. You are now managing the trade. There is more than one reason why you may exit the trade (ie not just the stop). What you are observing is now raw price and volume action. You will develop a sense for what you are looking at because you will look back in your charts to locate 20 or 30 other instances of where this situation occurs. You will develop a feel for what is going on. Is the trade doing what I was expecting ? Is something wrong ? (For example you may ask yourself, “Why are we forming a 3rd bar since the high volume bar and still holding around the high ?”…..thats a signal….its not doing as you expected (which is a fairly quick pull back so you can at least move your stop to b/e and leave breathing room)). You get out for a very small loss,

It’s a question of setting out rules which observations allow you to follow.

Steve.

DBP – Sorry for that mildly off topic stuff on ‘manipulation’.

 

[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]

DBP – Sorry for that mildly off topic stuff on ‘manipulation’.

If someone wants to open up another thread on how we trade according to our belief systems, or the manner in which we conceive and perceive market reality, I'd be happy to contribute to it.

But this thread is long enough as it is, and to get into this subject would make things more unwieldy than they already are.

I see nothing wrong with having two or more threads on related subjects that link to each other. One thread with hundreds upon hundreds of posts is of marginal value to anyone. At the very least, one who is interested in the subject of manipulation or lack thereof would not have to wade through hundreds of unrelated posts, and vice-versa for those who believe it's all nonsense.

 

[dbphoenix]

As regards accumulation, it is not necessary to wait until after the fact to determine whether or not it took place. If one knows what to look for, he can (note the word "can") determine whether or not it is taking place at the time. In order to do so, however, he must understand the context in which it may or may not be taking place.

 

[Vorpal]

You have stated that prices are kept low while accumulation is being completed by professionals releasing supply ?? This makes no sense – they are either releasing stock or accumulating, they can not possibly be doing both can they.

Those trying to accumulate stock will often release supply with the intention of depressing a stocks price thus enabling them to acquire more stock at a lower price. The object of selling a portion of their holding is to attract others to sell.

For the most part I would suggest that the word can only be used in hindsight. That is to say that one looks back at a daily chart, covering say 9 months, and then says “ah yes, looks like a clear case of accumulation back in March and April”…this is of no use now its October !
Therefore, I feel that the word ‘Accumulation’ relates almost purely to hindsight rather than foresight.

My trading strongly focuses on locating shares where accumulation is currently taking place.
I would look to enter, more aggressively, within the accumulation range although I appreciate you could enter on a breakout. Is this what you mean by hindsight?

Rgds.

Edit: Sorry, DB's post beat me to it.

 

[dbphoenix]

Those trying to accumulate stock will often release supply with the intention of depressing a stocks price thus enabling them to acquire more stock at a lower price. The object of selling a portion of their holding is to attract others to sell.

If it isn't taking place in a base, it's not accumulation.

 

[Vorpal]

If it isn't taking place in a base, it's not accumulation.

I understand a base to be a congestion area accompanied by low volume and ambivalence to direction.

Could you please expand on your above quote as I am lost on its intent.

Rgds.

 

[stevespray]

Vorpal.....

I acknowledge your points. What you are saying is that large current holders may release stock, one imagines that careful timing would be required, in order to depress the price in the shorter time frame thus encouraging supply at a lower price due to an element of panic or fear that the price might fall further. I have heard this stated before but have yet to see clear proof. What happens if several big players are interested in accumulating ? Surely one depressing the price will allow others to buy cheaply without needing to depleate their holdings.

Steve.

 

[dbphoenix]

Vorpal.....

I acknowledge your points. What you are saying is that large current holders may release stock, one imagines that careful timing would be required, in order to depress the price in the shorter time frame thus encouraging supply at a lower price due to an element of panic or fear that the price might fall further. I have heard this stated before but have yet to see clear proof. What happens if several big players are interested in accumulating ? Surely one depressing the price will allow others to buy cheaply without needing to depleate their holdings.

Steve.

Sorry to interrupt again, but that's not accumulation. Every purchase is not accumulation. Every sell is not distribution. If one doesn't understand the difference, then the terms have no useful meaning.

 

[Vorpal]

Sorry to interrupt again, but that's not accumulation. Every purchase is not accumulation. Every sell is not distribution. If one doesn't understand the difference, then the terms have no useful meaning.

I don't think Steve believes "every purchase is accumulation. Every sell is distribution."
I never read it that way and certainly don't think thats the case.

As I stated before, I don't understand what your getting at. I've read post 365 several times but its not clicking, sorry, it must be me.

Would you prefer if I used the terms strong hands in place of those and the public in place of others in my original post.

Please try and explain your intent clearly.

Rgds.