You are using an out of date browser. It may not display this or other websites correctly.
You should upgrade or use an alternative browser.
You should upgrade or use an alternative browser.
Daytrading- Big Picture and Volume Analysis
- Thread starter EMC2Trader
- Start date
BIG PICTURE AND VOLUME â Well its been an interesting first week for me here.
Iâve had a chance to browse many of the other threads, and I appreciate that much of the discussion here has been a lot tamer than elsewhere.
Iâve also come to quickly find that arguing in any form is simply an unproductive waste of energy for me personally.
I did start this thread with the primary focus on Big Picture and Volume, and how this view can often help with trading decisions, so as I continue to remain here, this is all I want to focus on.
Going forward, I will post my views on some of the bigger picture items I see developing in the ES market.
This may be of interest to some, this may be entertainment for some, and this may be meaningless for some.
If it spurs some discussions about what is happening in the market, then great because this is a discussion board, and frankly, this is what interests me most.
07-19-08
Iâve decided to show a Daily chart (left), Intermediate chart (middle), and Shorter Term chart with Volume (right) in an effort to point out important: Swing Points, Brackets Areas, Consolidation areas, Volume indications, etc.
The ES consolidated all day on Friday (middle), and volume completely dried up on both extremes (right), so the market is coiling between 1260-1250, the patient buyers and sellers are both way above and below now, so breakout move is coming from this consolidation.
On the daily chart (left) we see a steady one directional down move in place. Often, such moves will retrace 40-50-60 percent at some point. We can see that a breakout above 1260 will likely run to the bracket low area of 1280 (left) Then if we can get beyond this, a 40-50-60 retrace can move to the next 1330 swing area (dashed line)
On the downside, a break below 1250 consolidation will take price to the 1240 swing area (middle), and if that breaks, it looks like another test of the 08 lows.
Iâve had a chance to browse many of the other threads, and I appreciate that much of the discussion here has been a lot tamer than elsewhere.
Iâve also come to quickly find that arguing in any form is simply an unproductive waste of energy for me personally.
I did start this thread with the primary focus on Big Picture and Volume, and how this view can often help with trading decisions, so as I continue to remain here, this is all I want to focus on.
Going forward, I will post my views on some of the bigger picture items I see developing in the ES market.
This may be of interest to some, this may be entertainment for some, and this may be meaningless for some.
If it spurs some discussions about what is happening in the market, then great because this is a discussion board, and frankly, this is what interests me most.
07-19-08
Iâve decided to show a Daily chart (left), Intermediate chart (middle), and Shorter Term chart with Volume (right) in an effort to point out important: Swing Points, Brackets Areas, Consolidation areas, Volume indications, etc.
The ES consolidated all day on Friday (middle), and volume completely dried up on both extremes (right), so the market is coiling between 1260-1250, the patient buyers and sellers are both way above and below now, so breakout move is coming from this consolidation.
On the daily chart (left) we see a steady one directional down move in place. Often, such moves will retrace 40-50-60 percent at some point. We can see that a breakout above 1260 will likely run to the bracket low area of 1280 (left) Then if we can get beyond this, a 40-50-60 retrace can move to the next 1330 swing area (dashed line)
On the downside, a break below 1250 consolidation will take price to the 1240 swing area (middle), and if that breaks, it looks like another test of the 08 lows.
Attachments
Hi EMC,
Great thread. I use volume charts on the NQ,
and started using the bid ask pressure indicator
in TS before finding this thread.
I think price and volume analysis is important since
if you concentrate on price levels (fibs, pivots, gap
close, etc), sometimes it just blows right by.
Having said that, I have a couple of questions on the latest
chart you posed.
1)On the 1756 share chart, there is a divergence in
price and volume ratio in the circled area. Is this a sign
to start shorting retracements after the high in price was made?
2)If volume extreme had accompanied price making a high, then would that mean you start looking for volume decreasing on the pull back to go long?
Thanks. Any input would be appreciated. Please keep posting
those charts.
Great thread. I use volume charts on the NQ,
and started using the bid ask pressure indicator
in TS before finding this thread.
I think price and volume analysis is important since
if you concentrate on price levels (fibs, pivots, gap
close, etc), sometimes it just blows right by.
Having said that, I have a couple of questions on the latest
chart you posed.
1)On the 1756 share chart, there is a divergence in
price and volume ratio in the circled area. Is this a sign
to start shorting retracements after the high in price was made?
2)If volume extreme had accompanied price making a high, then would that mean you start looking for volume decreasing on the pull back to go long?
Thanks. Any input would be appreciated. Please keep posting
those charts.
Quote from greddy:
Hi EMC,
Great thread. I use volume charts on the NQ,
and started using the bid ask pressure indicator
in TS before finding this thread.
I think price and volume analysis is important since
if you concentrate on price levels (fibs, pivots, gap
close, etc), sometimes it just blows right by.
Having said that, I have a couple of questions on the latest
chart you posed.
1)On the 1756 share chart, there is a divergence in
price and volume ratio in the circled area. Is this a sign
to start shorting retracements after the high in price was made?
2)If volume extreme had accompanied price making a high, then would that mean you start looking for volume decreasing on the pull back to go long?
Thanks. Any input would be appreciated. Please keep posting
those charts.
Greddy,
You make an excellent point that I happen to totally agree with - price often blows right through pivots, fib levels, S/R, etc. and I never try to predict ahead of time if any of these areas will hold or not. (I believe it is price/volume relationships that cause these levels in the first place) I am very comfortable already being in a trade as these these levels are being tested. And for the reason just stated, I never look to enter trades at these levels just based on price action alone.
I will answer your two questions, but first, as an offshoot to question one, I personaly am a "with the trend trader" and the only countertrend trade I will ever consider is when it occurs after a volume divergence (never a price divergence for reasons you have stated). Also, my criteria is very strict for a countertrend trade. (1) I need my trading trend to have been in force for some time, with several non momentum swings in the trend direction (2) I then need the volume divergence to occur at a key big picture level, which can be a bracket high or low, or pullback to swing level in the bigger picture, etc. (3) Then, I also make sure I am not fighting a trend day that may be in place (which I can simply tell by looking at intraday price structure, A/D line, Dow +/-100 etc.)
This leads to your question number 1. When the volume divergence takes place on Friday near the highs (and lows too), this tells me patient sellers are drying up in this area and are now located way above, but this doesnt mean I immediately look to start shorting new retracements after price falls. Why? In this case two reasons First this isnt one of the countertrend sitations i described above (price wasnt trending up for some time)...In this case price is coiling in a tight range, and preparing to move to a whole new area altogether, either up or down. So in this example, price can either go much higher, or much lower, after the divergence. Therefore, the only way I will look to go short, in this case, is if the pullback brings in heavy volume (pateint buyers take control), and my trading trend turns down, which will never happen near the new highs even with a volume divergence.
Question 2 - This is exactly what I look for to go long. If volume is increasing during the upmove (pateint sellers in control, perhaps accompanied by anxious buyers etc.), and the buyers cant regain patience during the pullback (low volume as you say), then I will look to go long with my long entry setups, and to my way of thnking price will continue to go higher unitil either the patient sellers up above dry up and/or the pateint buyers at some point regain control on a pullback.
Quote from EMC2Trader:
and to my way of thnking price will continue to go higher unitil either the patient sellers up above dry up and/or the pateint buyers at some point regain control on a pullback.
Can you explain this a bit more? I would think that if patient sellers dry up, there are fewer sellers, so price should go higher.
How is it that fewer sellers (patient sellers dry up) brings price down?
Quote from shortorlong:
Can you explain this a bit more? I would think that if patient sellers dry up, there are fewer sellers, so price should go higher.
How is it that fewer sellers (patient sellers dry up) brings price down?
SorL,
If the patient sellers in one area dry up, then by definition they are now located way above this area (as a seller would always "prefer" to sell higher rather than lower).
So at this point the new patient sellers above, are merely in the tug of war with the patient buyers below, and price doesnt "have to go anywhere" but will go to where whoever wins the tug of war.
The reason price will go much higher or lower from a dried up patient seller area, is because if the patient sellers continue to win the tug of war, they are now much higher having dried up in the current area.
However, if they lose the tug of war, the patient sellers above, will not be able to get their desired price and will turn into anxious sellers on the way down.
So you can never predict what will happen, nor ought to, but if price continues higher your expectations should be for much higher prices (likely to key bigger picture bracket or swing points), and your expectations should be for much lower prices if the opposite occurs, and patient buyers gain control if price starts lower.
The interesting thing is we start trading tommorrow with these conditions in place.
Quote from shortorlong:
Can you explain this a bit more? I would think that if patient sellers dry up, there are fewer sellers, so price should go higher.
How is it that fewer sellers (patient sellers dry up) brings price down?
And here is another point that goes hand in hand with all of this.
If you stop to consider all the "false breakouts" you see in a market, you will see that the very principle of dried up patient sellers (for a false breakout long), goes hand in hand with this.
The patient sellers can dry up on the first push up in price (you of course dont know this at the time), or a second push up in price (where it becomes more clear).
However, in either case, if the patient sellers are gone in an area, and now way above, and price probes higher from the few remaining anxious buyers out there, price will turn right around, patient buyers will take control, and the patient sellers way above, will now turn anxious as price heads lower.
The implications for a trading plan, is to already be long before the breakout, so you can take advantage if patient sellers above continue to win the tug of war, or stay protected from a trade management standpoint if they dont.
Quote from jjf:
EMC2
How do you tell a Buyer from a Seller, are you acquiring this info from T&S.
No, I dont use the T&S for this.....I use the volume ratio study that
measures the ratio of up volume to down volume......From a pure matrix standpoint notice how when price is making new highs how often the ask volume levels increases dramatically (ie. ES- from hundreds of contracts to thousands of contracts)...So this sets up the extreme levels for identifying where the "patient orders are," and where you can begin monitoring what happens from that point forward.
For instance, I used to think that when price was heading to new highs and heavy ask volume entered the picture, this was major resistance, or sellers jumping in looking to "push" price down.
I no longer look at it this way at all, and if anything, it is the low volume tops, that will send price lower based on reasons discussed earlier.
Quote from EMC2Trader:
No, I dont use the T&S for this.....I use the volume ratio study that
measures the ratio of up volume to down volume......From a pure matrix standpoint notice how when price is making new highs how often the ask volume levels increases dramatically (ie. ES- from hundreds of contracts to thousands of contracts)...So this sets up the extreme levels for identifying where the "patient orders are," and where you can begin monitoring what happens from that point forward.
For instance, I used to think that when price was heading to new highs and heavy ask volume entered the picture, this was major resistance, or sellers jumping in looking to "push" price down.
I no longer look at it this way at all, and if anything, it is the low volume tops, that will send price lower based on reasons discussed earlier.
Interesting point of view.
I feel that volume is the energy entering the market and price is the outcome.
Since there is no way of knowing whether increased volume on the ask are big players clearing or entering, I let price tell me.