Quote from Susannah:
How predictive is volume to index futures, since they are ultimately controlled by what the index is valued at, which is controlled by the individual stock prices? I know the futures don't move exactly with the index, they definitely reflect the sentiment of the recent past and hang up at all the psychological support/resistance. Just wondering what your experience is with using volume as an indicator.
Your observations are right on (salient). Given this orientation, you are naturally on the right side of most trades having gotten in appropriately.
While I do not recommend predicting,for many reasons, it is a huge aid to use volume while managing a trade in a parasitic instrument like the index futures.
One of the most usful and simple volume display tools is using PRV on the forming bar. With the value showing you can determine if a trade will continue to make more money.
While in a trend, the movement is predicated on the force moving the trend in the form of more volume than in the past. The PRV displayed as a final bar sum may be easily judged throughout the bar to assure more volume is happening as a go/no go indicator.
The effect on trades is very powerful in that it prevents early exits and, then, assures reaching the parasitic turns which big money traders support. There is more; see below in this post.
For those who are contrarians, monitoring volume works just as well. They trade until the retrace contrary to the trend comes to rest on minimum volume (again using the sum of the PRV as a display) as volume slows from the peaking volume which first precipitated the retrace.
At some point, traders who spend effort optimizing making money, combine both of these market characteristics to trade with a neutral bias. This combination may not be obvious at first because of some intervals in market time where "trends" are ending and others are beginning.
Why a lot of traders have low net days compared to others who rake in what is offered can largely be explained by how volume and price operate together. Considering the BO of trends is a good place to begin to understand this.
Before that, it is a good idea to consider the number of trades that are taken in any trend. There are two kinds of trades in any trend: with the trend and against the trend. In any trend they repeat alternatively until on a final trending trade the trend begins to come to an end and the next overlapping trend begins with the final retrace of the end of the trend. The retrace ends at the trend BO; so does the overlap.
All of the above, makes it possible to understand how volume information contributes to trading with a neutral bias and extracting all the market offers. Volume lets you know where you are in the trend and the traverses of the trend (dominant and non dominant).
If a trade advances to being able to trade advances and retraces of trends, he makes a lot of money. He also can recognize the beginning of ends of trends, the overlap of trends, BO's in trends and the ensuing new trend's first dominant traverse as an extension of the trend ending retrace of the former trend.
Volume graphics may be enhanced in the same way price graphics are enhanced. When both are done in synchronicity; volume leads price and all decision points for taking profit segments become alive and clear. Any exit becomes an entry in the opposite direction. This combo is easily recognized as the reversal trade.
That puts on the table, skill heirachy of trading. Any traders can ask himself if he is in the upper or lower division of trader skills, knowledge and experience by a simple test. Have you crossed the line from entry/exit trading to hold.reversal trading?
Volume turns out to be the key for holding and it is also the key for reversing. Reversing is done on volume peaks and troughs (except the trend BO trough) and holding is done during the PRV sum moving from one extreme to the other (trending is rising volume, retraces are falling volume).
There are several progressions in trader experience acquisition:
1. P only>>P and V.
2. P and V>>>>Continue P and V.
3. P>>>>Pand V>>> P only.
4. P and V>>>>P only.
5. P and V>>> V only.
Ultimately, when experience sets in and the mindshifts to "sports memory" trading with a cool contemporary display, the choice 5 becomes the modus. It is probably because the volume as seen on YM leading ES, the DOM and the OTR tick charts for YM and ES give a person five volume readings that allow the turns to be carved to the tic extremes of the turns.
Choice 2 is the place to be to escape the lower division of trader skill.
Choice 3 is the most common place for marginal (in the sense of what is offered) traders to locate. they alrgely use "edges" and the edges are price oriented. They "learned" to not use volume because they did not get to the point of understanding the P, V relationship. Look up P V relationship in book's indexes. Do searches and it will be evident why.
