Volume tells all

[Splitlink]

There is a lot of theorizing and often just plain unjustified imagination as to what volume means. However I note your point of tracking whether transactions are taking place at bid or offer and what size is going through. The only occasional time I look is to check liquidity .. bigger size confirming better liquidity.

I have a series of charts that show a lot of volume on the down side, ending with a very large amount on the last down bar, which someone told me once, meant the end of the bear. The price then went up on lower volume. The trouble is that I, also, have charts that do the reverse!
All I find with threads like this is that there is an awful lot of theory and debate but, IMO, when it comes to the punch no one knows whether the price will go up, stay put, or go down on a lot of volume (or little volume for that matter).

The study of volume is very, very, time consuming and I remain unconvinced of its real use.

Split

 

[timsk]

The study of volume is very, very, time consuming and I remain unconvinced of its real use.
Split

Hi Slit,
I beg to differ! For a long time I thought that there was absolutely no logic to volume at all and that the people who sought to explain it were either extraordinarily clever or had extraordinary imaginations. Or both! Most of the time, I am unable to interpret anything useful from volume, but occasionally the signals are clear. As a tool to help to understand market sentiment, I think it's invaluable - even with my limited understanding of it. Yes, the study of it is time consuming and it's not easy which, to my mind at least, suggests that it will yield large rewards to those who are willing to pursue it.
Tim.

 

[Splitlink]

Hi Slit,
Most of the time, I am unable to interpret anything useful from volume, but occasionally the signals are clear.

But, surely, "occasionally" isn't enough? I do not use indicators because they are based on historical data and can be altered to the satisfaction of the user by changing the time factor but I find it impossible to depend on volume activity as an indication of which way the price is going to jump.

We all know about chart patterns and the expectation of a price move as it reaches the point of a triangle. I can show charts where the price has jumped with heavy volume and which has been proved a false move and the correct move, in the reverse direction, has been with hardly any volume. There are, also, instances of the reverse scenario. I believe that the MM's do not know which way the price is going after a sharp move with volume, which is why the price keeps moving around while trying to tempt traders into the market.

Split

 

[Splitlink]

Split,
Are you putting any context on the way you examine volume ? ..it doesn't sound like it...I'm referring to whereabouts the volume occurs within trends (short ,internediary and long ) ..try it and see if it helps you.

Chump, you're trying to get me involved again!

OK, my trades are going nicely this morning (without volume ) so I'll look into your suggestion. By the way, I am not a day trader. If I can hold a few days, I do. Therefore, I look at EOD data.

Split

 

[dbphoenix]

Chump, you're trying to get me involved again!

Split

Aren't you involving yourself by continuing to make posts such as #66? To which people like Chump et al respond? Then you respond to their responses. And so on.

As long as each of you defines "volume" in a different way, what is the basis for discussion? So far it's been just another violins on television debate.

--Db

 

[timsk]

As long as each of you defines "volume" in a different way, what is the basis for discussion?
--Db

db,
Would you please explain how a common definition of volume would help to move the discussion forward? (Maybe it wouldn't, but that's the inference from your comment).
Tim.

 

[dbphoenix]

Mutually agreed-upon definitions are the basis of discussion, debate, argument. Otherwise, color-blind people are arguing about what is or is not "blue".

If one defines volume as inventory, which Splitlink seems to do, then he will make different use of it -- if he is able to make any use of it at all -- than someone who defines it as trading activity, or "transactions". Similarly, if one views the study of volume as a means of predicting what will be, he will have a different experience than he who studies it to gain a deeper understanding of what is.

But all of this has been said before, more than once, and there's no reason to go into it again other than to suggest that those who view volume as whatever the MM is or is not doing, as the quantity of the "bid" and/or the "ask", and/or as transactions would more likely get something out of whatever discussions ensue by separating the discussions into distinct threads. The PV thread I sponsored, for example, studies volume in terms of transactions. For someone who defines volume differently to visit the thread -- or this one -- and declare that studying volume is a waste of time is irrelevant to the subject of the thread. So threads such as this one grow ever longer when only a few of the posts are in any way pertinent to the points that VSA was trying to make, confusing newcomers to volume even more than they already are.

This post, of course, will likely generate even more posts. So I'll make the one suggestion that newcomers study VSA's posts and charts and the market itself. In this way, they'll learn what volume is and means and is good for rather than get lost in a lot of detours and dead-ends.

--Db

 

[Trader333]

Chump, you're trying to get me involved again!

OK, my trades are going nicely this morning (without volume ) so I'll look into your suggestion. By the way, I am not a day trader. If I can hold a few days, I do. Therefore, I look at EOD data.

Split

It is a shame that you have not been able to make use of volume and especially as you trade EOD because it is of even more use than it is for intra-day moves. However, it is each to their own so I wish you all the best


Paul

 

[timsk]

Mutually agreed-upon definitions are the basis of discussion, debate, argument. Otherwise, color-blind people are arguing about what is or is not "blue".
Db

Db,
Thank you for the explanation; very colourful!
In an ideal world, I agree with you that before useful and productive debate can ensue on any subject, it's very helpful to have defined precisely what that subject is and that all participants agree with said definition. I'm reminded of how politicians try to broker a resolution to an especially complex issue - e.g. the middle east - by having pre-talks or 'talks about talks' for this very reason. But in the context of a BB like T2W, I'm not sure how this can be done? Okay, the author of the thread can lay down the law in very simple terms in his or her opening post , so that everyone is clear what the subject of the thread is. (Without being critical of VSATrader, he did not do this). However, as you know only too well from your own P/V thread, 'contributors' would insist upon talking about indicators in spite of your pleas for the thread to be an indicator free zone. If you have a table with 10-20 people seated ready for serious debate, the task of ensuring that they remain focused on the agenda agreed upon in the 'pre-talks' is difficult enough. However, at this 'table' , there are nominally 40,000+ people seated at it, so the task is isn't difficult, it's monumental and I'm not sure how it can be achieved.
Tim.

 

[dbphoenix]

It's called "staying on topic". And this particular topic is not all that complex.

--Db

 

[Aleph Sigma Chi]

It's called "staying on topic". And this particular topic is not all that complex.

Indeed it is not. But the thread title is a little misleading. Volume does not tell all. You need to look at price development over time as well.

 

[Splitlink]

If one defines volume as inventory, which Splitlink seems to do, then he will make different use of it -- if he is able to make any use of it at all -- than someone who defines it as trading activity, or "transactions". Similarly, if one views the study of volume as a means of predicting what will be, he will have a different experience than he who studies it to gain a deeper understanding of what is.
Db

I don't think that I have ever suggested that volume is inventory and there is little doubt that it is activity. You are, however, correct when you say that I have been unable to make use of it to date.

That's really all I wish to say to you about that and I really would appreciate it if you would leave me out of your posts.

Split

 

[dbphoenix]

I don't think that I have ever suggested that volume is inventory . . .

Actually, you have, but it's no longer important.

As for leaving you out of my posts, that's one of the pitfalls of public posting. If you prefer, I'll be happy to refer to you as the author of post so and so.

--Db

 

[SOCRATES]

And round and round the houses it goes again.

Thank goodness !

 

[pttrader]

This is simplistic and can misguide.


I don't need to use volume. Nevertheless I have said that volume can give a small clue if volume is the only thing or main thing a 'would be' trader uses.

I was a floor trader for a time and contrary to standard mythology selling moves the price upwards. When sellers retreat price moves up; when they take fright suddenly thats when price can shoot up. Vice versa for buying moving the price down.

As well you can have big volume going head to head without a big price move either way.

Happy detecting volume hunters.

When sellers retreat buyers have to step up to the plate or no transaction takes place. However, it could be said that buyers stepping up to the plate raises the price. The sellers retreating inniated it but the price only rose when buyers stepped up to the plate. They (buyers) could refuse to do so and the the sellers would have to then lower their offer to entice buyers. So, we could say ...what really moves the price up isn't because sellers retreat but because buyers are willing to raise their bid to meet the offer. However, I acknowledge the fact that if the sellers didn't retreat the buyers certainly wouldn't raise their bid. So we might say it takes both to raise prices. Sellers retreating and buyers raising their bid. But not always. If a big buyer comes in he could take everything offered (hit every offer) without a seller retreating. So, we are back to simple basics of demand and supply or better put PERCEIVED demand/supply or buying/selling pressures.

Most of the time concepts are better understood when explained in a simple form. The basic concept that I spoke of above I have see it happen many times ...maybe you don't???. I see it happen alot however, it is not be be taken as the ONLY thing to look at when trading. The size of the daily range. The open and the close. Support / Resistence levels, pivot points, the general trend and the previous few days context could all be considered ALONG with the volume to make a determination. I in no way meant to infer that all one had to do is to just correlate volume with the immediate price. I only explained it in simple terms to get the point across.

Maybe you don't need to use volume in your trading but I still maintain that tells an important story about "how" the immediate price was in fact made; thus giving one an indication of demand/supply or as some say buying/selling pressure. Alot of well known traders also see volume as important. Of course, in the end the only thing that matters is PRICE because we don't buy volume, however, volume can help one to see what the price will MOST likely do in the immediate future. A better to put it would be to say that volume can help to give a "clue" to buying selling pressures thus help to indicate areas of perceived demand/supply. If one can get a handle on the pressures then maybe this could be projected into the near future. Even though this thread isn't necesarily about level 2 ....as an example of volume ...one can watch a level 2 screen and see the transactions going across and could predict within minutes ..sometimes seconds of when price would rise to the next level of bid and ask. Nevertheless, even this isn't 100% because the MM's and the specialist play with the bid/ask size numbers neverthless, there are ways to tell when they are playing around with it. At any rate it usually is close enough to be able to make money.

In conclusion, IMO volume does have a story to tell about price. About buying/selling pressures. About support/resistance. About demand/supply. Whether or not one accepts the story or incorporates it into their trading..well.. that is up to each individual trader. Nevertheless, in the end PRICE is KING.

If one is an EOD trader volume can also be useful especially if one uses it in tape reading.

 

[SOCRATES]

And.....?

 

[Splitlink]

Here are two trades that I have open at this moment. I use Yahoo for intraday, sorry that I have nothing more sophisticated but it shows volume, which is what this thread is about.. Volume was not a consideration in either of these trades.

WPP. Bought, as it was on support, for a rise on Monday morning. There was volume on Friday. Was it significant? There was hardly any volume Monday and Tuesday. Did that indicate that the price was rudderless- meandering around with no direction? On Monday, should I have said
"There has been no volume today-I'll take this profit because of tjhat?

PRU . Last Friday there was quite a bit of volume, After I bought on Monday something happened with volume and the price went down a couple of points. Monday there was little or no volume and the price finished firmly. There was a little more volume at the end of the day and the price had flattened. Can anyone see any significance in this?

Good trading

Split

 

[chump]

Split,
I will gve you my take for what it is worth.
WPP last Friday vol expanded on a pullback against prevailing downtrend..that's abnormal ..if that's a 'real' pullback within a continuing trend vol should be fading into the pullback. That's a signal for a short to to get ready to cover as the downtrend is 'probably' coming to an end and there is also a round number at 550 impending. This is not really a signal however to go long . Monday went thin on both price and vol until an increase at the eod...clearly selling had stopped for the moment and buying was coming in...against a trendline there's an early B/O to go for at 560 ,but for this to succeed you need to see vol increasing..in the event a B/O occurred on Tues but the vol was not there to carry through which I think means that whilst buyers were eager enough to begin with they were short of people willing to sell which is why it tapered off and his now pulling back to the B/O 560 level ...to have an idea how to deal with this you need to see whether vol increases or decreases as price makes this move ..at the moment there is no evidence this stock will reverse..it might just as well go into a sideways trading range.
I'll let someone else have a go at the other chart for you.

 

[dbphoenix]

but for this to succeed you need to see vol increasing..in the event a B/O occurred on Tues but the vol was not there to carry through which I think means that whilst buyers were eager enough to begin with they were short of people willing to sell which is why it tapered off and his now pulling back to the B/O 560 level ...to have an idea how to deal with this you need to see whether vol increases or decreases as price makes this move

For the most part, you're looking at volume as an activity rather than as a "thing", which is a hurdle most people can't clear. Therefore, the "story" behind the data will make more sense to you.

Take care, though, to remain tentative. Maybe buyers ran short of sellers as you suggest, which would keep trading activity (volume) low. Or maybe there were then fewer buyers who thought the price had further to go. Price can make amazing progress on very little "volume" as long as buyers think that whatever is worth ever-higher prices and sellers don't drown their demand with too much supply. At certain critical points, however, such as breaking through a base, buyers require reinforcements, and if those reinforcements aren't there, those shares get thrown back onto the market and the selling pressure outweighs the buying pressure.

I'll suggest yet again that focusing on the "bar" without troubling to watch the bar form or at least consult a shorter interval to find out what happened within the bar is a mistake, leading to the same errors as are encouraged by color-coding.

--Db

 

[pttrader]

Split,

THIS POST IS CORRECTED:

For some reason I couldn't read your charts. Too small and fuzzy even when enlarging them. So, I went to bigcharts and typed in the symbols. Here is my take on it if swing trading it for up to 3 days. I keep things simple.

PRU - Rule: "When a downtrend has been in force a downbar with a high range closing on higher than average volume and with a bigger than average range indicates price will probally rise as smart money is buying. The higher the volume and bigger the range the greater the rise tends to be". On Friday 7th there was such a bar. However, the range was not very large nor the volume excessive which tells me that any move upward on Monday might not be that big of a move. So, if it were me I certainly would have been looking at selling it on Monday on ANY decent profit.. As it ended up friday was a weak reversal point of the previous trend. So, monday would have been the day to sell. If I for some reason didn't sell monday then I would get out of my position on any move tuesday or even today that gets back any loss. Why? Look how it closed monday..weak and on declining volume from the from the previous 3 days bars. This reversal made Friday would have been much more significant and a reason to hold it longer had it been made on a wide range with plenty of volume because the 3 bars previous to friday 7th were a good decline. It would take alot of demand to come back in to stop this decline. The close today wed is significant as well as the volume. If it close weak on significant volume with a large range then it is still going to head south. If it maintains a small range with price going no where then possible accumulation is taking place for another markup to begin. This is what I suspect will happen next - Accumlation for a few days.

wpp-On thurdsay 6th we have a trend reversal following the same rule mentioned above in PRU. Always look at the context of the reversal..in this case, at the 2 previous bars. A steep decline on 4th and 5th with increasing volume on those 2 days. The a reversal on 6th but ON WEAKER volume with a little more than average range. What does this tell me? It tells me that the reversal is not a strong reversal so I can't follow it up to far. Friday's high close on a decent range with a small increase in volume over thursday volume. This indicates that it will still go higher but not very far. Why? Because the volume wasn't there even though it closed high and such a close indicates demand was coming back in but not enough demand to ride the price up on Monday very far. When I saw the open up then trade up and and hesitate at $11.40 early monday I would have dumped it and took my profit. Why? You have to look at the context. In the previous 4 days (from the 6th) a steep decline was made and made on increasing volume and a weak reversal on on the 6th. Any uptrend normally wouldn't last very long in such a senario. However, if it went out of normality and if on monday it opened and traded up early in the session and just kept going up then that would have indicated more demand coming in and sellers backing away. The hesitation on price rise on monday was the indication to sell any longs because it was simply confirming the previous few days context. Once again this stock will probally be in accumulation at least for the next few days. Maybe even go lower in price. It just went thru a price markdown. I suspect it may even go a lower yet than tues's or thursday's low but will be able to tell more when I see the close and the total range made for today 12th. Look at the increasing volume on a price drop on tues 11th with a somewhat weak close. All this indicates heading south which is just what it did on today. I will be able to tell more when I see the close, range, vol today.

As of 10-12 If I were long on either one of these stocks and holding a loss I would get out and take my loss. Nevertheless, PRU IMO is less dangerous to a long position so if I had to grit my teeth and hold on it would be with PRU unless I see any more significant change that tells me otherwise.

Does this make any sense to you?