Is Vol. Really Important ?
- Thread starter Babak
- Start date
volume is important as the ratio between the buy and sell side deviates from 50/50. it is the inequality of volume that i pay attention to.
There are three measurable components to every market:
1.) Time
2.) Price
3.) Volume
Ignore anyone of the three at your own peril.
1.) Time
2.) Price
3.) Volume
Ignore anyone of the three at your own peril.
Probably it is important to add that volume means a lot more in daily, w and m charts than in intraday charts. Correct ?
A distinction that has not been made so far.
Just my 0.02
A distinction that has not been made so far.
Just my 0.02
Well, that's the thing. I mean volume is just a sign of interest in a security. After all, it only prints when there is a buyer and seller. I would be rich beyond my wildest dreams if I had a dollar for everytime some knucklehead said, 'take a look at XYZ, a 5,000,000 block was bought' implying that XYZ is going to go up. I mean, c'mon! sure, 5 M crossed the tape but there were buyers and sellers for those 5 M shares! How is that by itself bullish or bearish?
As for spydertrader's journal/JHershey's approach...from what I understand he looks for 'dry up' in selling. Again, this is a non sequitur as there is drying up in both selling and buying. So all we can correctly say is that the market is not interested in the security as much as it was before, so less is being traded (less is being bought and less is being sold).
After all, what makes a stock go up? more aggressive buyers than sellers right? nothing to do with the number of buyers vs. sellers. I would also be rich if I had a dollar for everytime some dolt said a stock went up because there was more 'demand' than 'supply' - obviously demand and supply MUST be equal, otherwise the stock doesn't trade!
Which is why I think this sort of thing is nonsense:
"The only fundamental factor that really counts in the stock market is The Law of Supply and Demand" - Richard D. Wyckoff
[from the link Lawrence supplied]
or something like:
I'll say it again...buy and sell sides MUST equal. Demand and supply must equal. Otherwise there are no transactions !
Hope no one gets offended, I'm just trying to cut through the pablum and the cliches to get to the bottom of this...
ok, lets step back a bit...
A transaction occurs when you have agreement on price and disagreement on value. By that I mean that I buy when I get someone to agree with me on the price of the thing, and disagree with me that present value of the thing is more than it is at that moment.
With simultaneous and paradoxical agreement and disagreement, a transaction occurs. For the price to go up, that is for a transaction to take place at a higher value, the same process takes place, but I, as the buyer, am more aggressive, that is, I put the present value of the security higher than I did before, and so does the seller. So a transaction takes place at a higher price. Nothing really to do with the quantity of the buyers and/or sellers. They will always match. They have to, otherwise we just have lots of bids and asks.
So then you don't need higher volume for a breakout or an uptrend, as the TRID example illustrates. Sure, it is ok to see it because it means that there is a change happening in the ownership matrix of the security and that by itself could be bullish because you've got a different set of eyes/brains on the stock.
What I mean by this is that you could have a basing action which is being done predominently by 'value' investors patiently acquiring shares over a long time. Then as the price goes up, they sell to momentum buyers who slowly (or not so slowly) take over the ownership matrix of the security. This 'turnover' in the qualitative aspect of the ownership would show up as volume spikes concomitant with a rising price. Good recent examples could be ALY or BCON.
I'm just trying to think things through and the above is where my head is at right now. If you can offer a lucid explanation other than mine, I'm all ears.
As for spydertrader's journal/JHershey's approach...from what I understand he looks for 'dry up' in selling. Again, this is a non sequitur as there is drying up in both selling and buying. So all we can correctly say is that the market is not interested in the security as much as it was before, so less is being traded (less is being bought and less is being sold).
After all, what makes a stock go up? more aggressive buyers than sellers right? nothing to do with the number of buyers vs. sellers. I would also be rich if I had a dollar for everytime some dolt said a stock went up because there was more 'demand' than 'supply' - obviously demand and supply MUST be equal, otherwise the stock doesn't trade!
Which is why I think this sort of thing is nonsense:
"The only fundamental factor that really counts in the stock market is The Law of Supply and Demand" - Richard D. Wyckoff
[from the link Lawrence supplied]
or something like:
I'll say it again...buy and sell sides MUST equal. Demand and supply must equal. Otherwise there are no transactions !
Hope no one gets offended, I'm just trying to cut through the pablum and the cliches to get to the bottom of this...
ok, lets step back a bit...
A transaction occurs when you have agreement on price and disagreement on value. By that I mean that I buy when I get someone to agree with me on the price of the thing, and disagree with me that present value of the thing is more than it is at that moment.
With simultaneous and paradoxical agreement and disagreement, a transaction occurs. For the price to go up, that is for a transaction to take place at a higher value, the same process takes place, but I, as the buyer, am more aggressive, that is, I put the present value of the security higher than I did before, and so does the seller. So a transaction takes place at a higher price. Nothing really to do with the quantity of the buyers and/or sellers. They will always match. They have to, otherwise we just have lots of bids and asks.
So then you don't need higher volume for a breakout or an uptrend, as the TRID example illustrates. Sure, it is ok to see it because it means that there is a change happening in the ownership matrix of the security and that by itself could be bullish because you've got a different set of eyes/brains on the stock.
What I mean by this is that you could have a basing action which is being done predominently by 'value' investors patiently acquiring shares over a long time. Then as the price goes up, they sell to momentum buyers who slowly (or not so slowly) take over the ownership matrix of the security. This 'turnover' in the qualitative aspect of the ownership would show up as volume spikes concomitant with a rising price. Good recent examples could be ALY or BCON.
I'm just trying to think things through and the above is where my head is at right now. If you can offer a lucid explanation other than mine, I'm all ears.
You misunderstand the definition of Dry Up Volume. In addition, I 'look' for an increase in volume after this period of Dry Up Volume as a precursor to increasing price. Such volume increases are termed First Rising Volume (FRV).
While it is true price can move higher even under circumstances where low volume levels occur (HANS often showed such an ability over the last year), one can profitably use changing volume levels (and price) to profit from the market - especially from a certain subset of stocks.
- Spydertrader
Truth.
That is volume is current, amperage, flow, contracts/sec, shares/min, whatever...
If price is rising WITH volume it will continue in that direction until it doesn't. But a low volume consolidation is just that. So depending on your timeframe (you gotta know if this is a scalp, swing, or position trade) then you can use volume as everybody here alludes to help you manage your trade. But there is also truth in that volume high, low, and in-between doesn't always tell the whole story. Look for sustained grinds on low volume as proof.
Not that anything I just wrote will help but that is the essence of analysis.
Does anyone have good references to studies on (equity) price paths as directed processes (eg volume)?
