Explain This Price/Volume Action - CL

[macattack]

Can somebody who knows a little about how markets work explain why there are such large volume spikes in CL today with each new high?

I don't if anybody knows for sure since there could be hedging going on, or something to do with options, or a combination of sellers & buyers all creating transactions as the same time, but I was just trying to get some insight.

The 5th spike which I marked looks like the sellers finally overwhelmed the buyers, but I'm not sure about the others.

 

[nazzdack]

----large volume spikes in CL....
----new high?
----insight....
----5th spike....
----sellers finally overwhelmed the buyers....

1) Are you in the Pacific time zone?
2) Trendfollowers can be expected to initiate "longs" at new highs and those who are "short" can be expected to cover trades at those same levels.
3) "Profile" traders can be willing to trade "bigger" size at daily extremes while hoping to "reverse" a market back into a trading range. :eek:
4) Regarding the 5th spike, you can only know in hindsight if that was going to be an intra-day extreme where the market would retrace moderately to the downside afterwards.

 

[dbphoenix]

Can somebody who knows a little about how markets work explain why there are such large volume spikes in CL today with each new high?

I don't if anybody knows for sure since there could be hedging going on, or something to do with options, or a combination of sellers & buyers all creating transactions as the same time, but I was just trying to get some insight.

The 5th spike which I marked looks like the sellers finally overwhelmed the buyers, but I'm not sure about the others.

There's a buyer and seller for every transaction, and there are plenty of both represented by those volume spikes, but the buyers are willing to pay what the sellers are asking, so price rises.

Don't know if that qualifies as "insight", and I can't tell you why the volume spikes occurred at all, but demand is what caused price to rise.

 

[trade_canada]

I've noticed similar activity in NG as well (higher volume prior to trend pull backs and reversals). My guess for the causes behind this are that liquidity providers (sellers in this instance) are at a more profitable level and offer out more of their inventory, buy stops set by short traders are triggered, and late/emotionally driven bulls are suckered in by the visually attractive rally.

 

[macattack]

1) Are you in the Pacific time zone?
2) Trendfollowers can be expected to initiate "longs" at new highs and those who are "short" can be expected to cover trades at those same levels.
3) "Profile" traders can be willing to trade "bigger" size at daily extremes while hoping to "reverse" a market back into a trading range. :eek:
4) Regarding the 5th spike, you can only know in hindsight if that was going to be an intra-day extreme where the market would retrace moderately to the downside afterwards.

I'm in Oregon. I guess the reasons you gave are probably correct. I can understand some higher volume at those areas, but it just doesn't seem like it would be so extreme compared to the previous bars.

I wish I understood how hedging & options affect the price action we see in our simple charts. I'm pretty sure those guys can create some huge volume when they do their thing.

I've tried researching it, but I couldn't find anything that described how they go about their business & how it affects the charts we watch.

 

[nazzdack]

----I can understand some higher volume at those areas....
----doesn't seem like it would be so extreme compared to the previous bars.
----options affect the price action....
----couldn't find anything that described how they go about their business & how it affects the charts we watch.

1) Concentrate more on the price action as it is instead of trying to attach "reasons/news" to explain it after the fact. You'll go crazy otherwise.
2) When intra-day price extremes occur very close to an option strike price, i.e. near "even" or "fifty", maybe it is attributable to a large options trade that is being hedged with futures.

 

[Blotto]

compared to the previous bars.

That is where you are going wrong. Context. Why compare to previous bars? Is this even logical?

I've tried researching it, but I couldn't find anything that described how they go about their business & how it affects the charts we watch.

Well as understanding this is the key to the whole market, did you really expect to find it written down somewhere for you to 'research'?

Sure, there are answers. Gotta put in the work to find them for yourselves. Those who know already are gonna stay stum. If you don't know how these traders do business and how it affects the charts you watch (and therefore the decisions of many other traders), then what are you basing your trading decisions on? Or are you just looking at a chart and seeing a bare record of transactions without any appreciation for the motives behind the decisions and therefore what decisions traders will want or need to make in future?

It is good to ask questions - when you understand the decisions which created the volume at the highs on Thursday - then you will understand what was likely to occur in the first part of Friday's trading session. A meal for a lifetime if you can work it out.

Would be nice to have a proper discussion about the questions you ask, but ET isn't the place unfortunately.

you can only know in hindsight if that was going to be an intra-day extreme where the market would retrace

All I ever read on trading boards is "you can't". Written by people who can't. Imposing their limited view on everyone else. What you really mean to say is "I can't". Just because you cannot see the order, doesn't mean there isn't any order to be found.

I can't tell you why the volume spikes occurred at all, but demand is what caused price to rise.

And when the market falls the following day, you'll be back to tell us that "supply" is what caused price to fall? You write a lot, yet say nothing of value. Impresses those who need to be impressed though. It is sad to see so many starting "price action" journals and following you apparently without even having asked the obvious question: do you truly have something of value to offer?

You say both buyer and seller for every unit of volume reported, yet talk only about "demand" causing price to rise. What about supply while the market was rising Thursday? Who was selling there and what is their motive? Closing existing positions (for profit? under duress?) or opening new positions? Was the price being driven higher by strong demand, or being allowed to rise to bring in more weak demand, to satisfy the needs of the strong sellers? What timelines of trader are we talking about? Day traders only? Swing / position traders?

Do we know (or can we measure) how much of the volume is directional, how much is hedging/arbing? All interesting and relevant questions.

Like any other subject, trading should be made as simple as possible, but no simpler. Those who are seriously interested in learning need to do their own work to find the answers, which is best done away from the drivel and distractions common on trading forums.

 

[tiddlywinks]

On some levels, Blotto is correct.
For now, I'll just comment on his "context" comment.

The volume spikes are the "result" of previous bars. The result is not the context. If you look, you will see a volume vacuum (either a selling vacuum or a buying vacuum) preceding each spike. THAT is a context, a volume context. The volume spikes themselves are merely indications of a new volume context forming.

I do not expect many to understand my comment, but with a strong understanding of volume, the spikes and resulting moves were indeed foretold on the chart in real-time.

That said, I do not trade CL.

 

[pinkman]

if you ever want to find the answers, I think you have to know someone in real life (not a bullshit online guru) who is willing to share their secrets.
There's nothing valuable on trading forums.

 

[dbphoenix]

And when the market falls the following day, you'll be back to tell us that "supply" is what caused price to fall?

If someone were to ask, yes. That's the way it works.

You say both buyer and seller for every unit of volume reported, yet talk only about "demand" causing price to rise. What about supply while the market was rising Thursday? Who was selling there and what is their motive? Closing existing positions (for profit? under duress?) or opening new positions? Was the price being driven higher by strong demand, or being allowed to rise to bring in more weak demand, to satisfy the needs of the strong sellers? What timelines of trader are we talking about? Day traders only? Swing / position traders?

Demand -- or buying pressure -- causes price to rise, i.e., buyers are willing to pay what sellers are asking. If they aren't, no transaction takes place. Supply -- or selling pressure -- causes price to fall. And prices will continue to fall until enough interested buyers can be found to retard, halt, and reverse price. Whether volume is strong or weak has nothing to do with whether price rises or falls. In fact, volume can be quite strong yet price goes nowhere. This is called "churning".

As for motive, though it may be interesting to investigate and discuss, it's irrelevant if one wants to trade. By the time one figures out motive, the trade is gone.

I misunderstood the original question, but if one had been interested in trading this and had been focused on price behavior, he would have noticed that price doesn't drop below the previous swing low until 1050. If he had been in, he would have had no reason to exit. If he couldn't enter without knowing the "why", then he would likely have missed the entire move.

Hope everyone has a nice day.