Is Vol. Really Important ?

[Babak]

Thanks to everyone for their contribution. I may not agree with some or all of what you say, but I do value your input. I don't claim to have monopoly on the truth, I'm just trying to understand this a bit better.

First of all, I wanted to clear up what I'm talking about or proposing that we talk about. I find that often people are not precise about what they are referring to and that can lead to miscommunication and misunderstandings.

So to be clear, I'm talking about the question of whether volume, as a variable, is helpful and/or necessary in determining trend...especially as that applies to breakouts from consolidations or bases. I hope that is clear by now.

Also, I'm talking about end of day, swing or position trades. That is to say, trades which last from one day to several weeks. I'm not referring to intraday trading. As well, I'm talking about stocks, not fx, not indices, etc. Stocks.

ok I hope that provides some solid ground on which we can establish our arguments.

I'm going to re-read all of the posts again but I would ask that if you're writing, please write clearly. Use examples, rather than vague theories or cliches. If possible give exact situations. I always try to do this and have given several (TRID, ALY, BCON).

I'm having a lot of difficulty in understanding what Grob (Jack Hershey?) is saying. No offense but I've learned in my short time on earth that a muddled manner of expression is the fruit of a muddled mind. The onus is on each of us to clearly state our position not for others to struggle and stumble on a convoluted and meandering explanation. Lets give Greenspan the monopoly on that market, ok?

Again, I tried to do this when I wrote about what specifically a transaction is and what it entails. I would really appreciate if others would use some specific examples of their explanations. I know that some have done this (easyrider provided graphs) and I thank them for being so clear. On a digression, I would invite easyrider - eventhough it refers to intraday trading and is technically outside of our purvue - to explore the null hypothesis of what he is proposing. It is true that volume exploded (from very quiet prior trading bars) and price then went up...but how many times did volume do exactly that with no concomitant reaction in price? I can find several examples in the same graphs that he provided. Exploring the null hypothesis of volume (as expressed in TA books) is what this thread is all about!.

I'll be back with some more but for now I wanted to just chip in and say that davelansing mentioned Weinstein as not relying on volume. I don't want to make a federal case out of this but its not true. Stan is emphatic that vol is important. Also, to anyone who uses the terms demand/supply or imbalances... please, for the love of Pete! what the heck are you talking about?!?! What demand? what supply? what imbalances? be specific and clear.

As I've said before, supply always equals demand and there is perfect balance ALWAYS. That is the job of the market and it does it beautifully. If it didn't all we would see would be bids/asks! You don't agree? fine with me. But explain yourself - clearly and give us examples so simpletons like me can follow your logic.

I loved thunderdog's post - right on the money. I'm intrigued though when he says that he's not using it in the way that is most commonly expressed in TA books. That is my whole point !!!

 

[davelansing2004]

Quote from Babak:



I'll be back with some more but for now I wanted to just chip in and say that davelansing mentioned Weinstein as not relying on volume. I don't want to make a federal case out of this but its not true. Stan is emphatic that vol is important.

Hi Babak,

I was refering to Mark Weinstein of Market Wizard fame, not Stan Weinstein... BTW, I have Stan Weinstein's book and throughout his examples of price movement "exploding" on high volume out of consolidation areas, I can also point out on the same graphs price exploding out of bases in the absence of increase volume... just my "observation"...

 

[easyrider]

Quote from Babak:



On a digression, I would invite easyrider - eventhough it refers to intraday trading and is technically outside of our purvue - to explore the null hypothesis of what he is proposing. It is true that volume exploded (from very quiet prior trading bars) and price then went up...but how many times did volume do exactly that with no concomitant reaction in price? I can find several examples in the same graphs that he provided. point !!! [/i]

Of course. Rising volume by itself is not enough. As in every situation there are a number a factors that have to set up a trade for me. We were nearing completion of an ascending triangle which is one of my favorites. I was waiting for it to clear the 15min 20ema which it finally did about the time the rising volume started which gave me the confidence to enter before the break. I did not take the first attempt at a break because the 15 20ema was overhead and it often proves to be resistence. Im sure that a lot of people took this trade without even looking at the volume but I always feel more comfortable entering a bit early when everything lines up.

I guess I was off topic with the intraday stuff. Sorry.

 

[Babak]

makosgu:

I read and re-read your post half a dozen times but I still don't understand 85% of it. Here's something you said, that I do understand : So why is volume "really" important. The simple answer is without it, price cannot change.

This is an assertion. I would invite you to prove it or atleast to provide arguments for it. Otherwise it has no value as a simple assertion. Especially as it seems that all your other arguments are based upon it.

I discussed this specifically and showed why and how price can indeed change without any change in volume (increase or decrease). Apart from this theory that I offered, I also provided real world examples.

Grob109 (Jack H?):

I also had to read what you wrote several times as you're not coherent. I'm going to try to get a better understanding by asking you to explain what you wrote in some instances. For example:


The focus of these guys is incorrect and they got there using CW. If and when they look more closely where they look they are going to see something quite to opposite of what they reason to be the case.

So you're saying my focus or our focus is incorrect. I get that. What is CW? You lost me. If we look where we look we're going to see something quite the opposite of what we reason to be the case? So I guess you're saying that we're missing something and if we look where we look (where else can you look but where you look? ) we'll see its the opposite of our conclusions.

ok, that's a really long and convoluted way of saying that you think we're wrong. You've said that in several places. I get it. You think we're wrong.


Then you say:

Think carefully about one other element of this situation. All of these people are interested in trading the entity. The rest of the world is not.

I disagree (assuming I understand what you're saying). There are an unlimited number of potential people who may wish to trade the security in question. The volume numbers show after the fact just how many were interested to put in a bid/ask that met its mirror opposite in the market. Perhaps a minor point but nevertheless.

You say:

I will focus on the failure of reasoning of Babak, davelansing and sundown.

I get it. You disagree. Yet for all the time that you spent saying you disagree, you have yet to say why we're wrong. And ironically, you also seem to agree with me a lot!

For example you agree that :

Volume is determined by one factor.

It is the extent of mutual agreement of the two distinct groups that make up the active interested traders of the entitiy. The views of the two groups differ widely on everything except the value of the entity. the value at which it is worth owning for new owners and the value at which it is worth selling for old owners.

The above is pretty much your unique wording of what I already said originally: that a transaction is agreement on price and disagreement on value. The only difference is the brevity in my post and its absence in yours.

You go on to say:

So to trade well and make money, you must examine the opposite side of the coin on mutual agreement. You must examine how disagreement persists.

Now we're getting somewhere! ok I assume you mean the disagreement on value, right? Well, here's the kicker. Disagreement persists because that is the nature of markets!

Disagreement on value persists because unless it did, no transactions would take place! This is very important to understand. It is childish to 'examine how disagreement persists' because that is the order of things in a market. Its like asking a marine biologist to 'examine why water persists in being wet'.

You go on to say:

By knowing how to detect the dissagreement coming to an end, you are able to always have the market "push" your entry for a swing trade. How you measure all this stuff has been put on an excel sheet in the MSN site.

Now, assuming that you're still referring to disagreement on value (a transaction occurs when there is agreement on price and disagreement on value)...I have no idea what you're saying or what you could possibly mean that would make any sense whatsoever.

Disagreement can not come to an 'end'. If it did, there would be no trades! None. Just bids and asks because everyone agrees on the valuation of the security! Get it?!?

You call the explanation I gave 'trite' yet you show by these comments that you do not have an understanding of the underlying and basic functions of a market or what makes up a transaction.

You say:

I have always suggested that when you open a book go to the index and see if there are a lot of citations on volume. if not do not buy the book.

You gotta be kidding! Don't get me wrong. I read all sorts of books. I even own Cassidy's "Trading on Volume" but what you say above is balderdash.

You say:

So volume is the principal criteria for selecting a universe of tradable stocks....One of my stock trading limitations is 100,000 shares of a stcok from those in my universe which is based upon volume.

Non sequitur. This has nothing to do with what we are talking about and it is as obvious as the nose on your face. Of course volume is a filter criteria! What does it have to do with this thread? Nothing.

You say:

My posts are all based upon personal operating experience over nearly fifty years of trading. What you read in books you will notice were written relatively recently.

Oh really? Darvas is recent? Reminicenses is recent? Baruch is recent? Wyckoff is recent? Edwards/Magee is recent? shall I go on?

And finally, again you say:

If your reasoning about things is like Babak, davelansing and sundance you will be prevented from learning about how the market works for you to make money.

ok, I get it. I'm wrong. We're wrong. And surprisingly you have yet failed to offer anything to show why or how we are wrong. As such, its just an empty (and repeated) assertion and has zero value in an intelligent dialogue.

 

[Babak]

mtt,

very interesting. That is what I'm also starting to conclude. That volume is another variable that may or may not fall into place. If it does not, it does'nt mean that trend will not start or continue. Rather the sum of the other variables will carry the day.

To be clear, the other variables I refer to could be the general health of the market, breadth, major indices trending or not, S and R, sector indices, etc....

You're last comment is also interesting. So you're saying they try to keep things quiet, on the down low so as not to get attention? could be, could be. It is common knowledge that volume spikes or increases garner as attention from the market faster than chum attracts sharks.

btw, in a rather bizarre way I totally understand what you're saying. I think its a first! It must be that after reading Grob/Jack I've recalibrated. I'm glad Strunk & White aren't alive to read some of the posts on this board.

Quote from murray t turtle:

Most of the stocks i watch,record volume/price on have a better follow thru, say increasing volume for uptrends.

But having checked much on this ,would NOT insist on it because that would miss way too many excellant moves .

Clearly voulme is secondary to price;
volume spikes stop trends, but they start trends also

Have noticed sometimes,
great care is taken & it couldnt be random;
buyers aim at keeping volume close to average on uptrends,
& to a lessor degree for downtrends.

 

[Babak]

ok, right. It wasn't clear to me when I read your post. As I said, not a federal case.

Quote from davelansing2004:

Hi Babak,

I was refering to Mark Weinstein of Market Wizard fame, not Stan Weinstein... BTW, I have Stan Weinstein's book and throughout his examples of price movement "exploding" on high volume out of consolidation areas, I can also point out on the same graphs price exploding out of bases in the absence of increase volume... just my "observation"...

 

[Babak]

In another post Grob (Jack?) said in response to davelansing:

You are speaking of right and wrong. I am speaking of persons gaining more depth of understanding and as a consequence doing better in making money.

In fact, Grob, you *were* speaking of right and wrong. Several times actually. You clearly said that I was wrong (or we were wrong) and yet never really showed why or how.

And you go on to say:

4. Volume, as an indicator, precedes price.

Again, a nice cliche. How about actually explaining it in theory and showing real examples?

Then you say:

Most of the ET thread content is about people assert that they are right and others are wrong. I believe that it is a different thing to comment on viewpoints that suggest something is not worth considering when in fact there are many reason to give consideration...

Backpedalling. You clearly believed we were wrong and said so:

I will focus on the failure of reasoning of Babak, davelansing and sundown.

 

[Babak]

In another post Grob (Jack?) said in response to davelansing:

Illiquid is looking at differing flags than I am and his set is a lagging set instead of a leading set.

How so? Again, I'm not sure I understand you since you're not coherent but it seems to me that you're 'lagging' as well. Or do you consider RSI, MACD, "DU xover" to be leading?

And in another post easyrider asks a very simple question which shows what Grob said about 'smart money' ("Smart money is trading the YM and DJ.") is false. Here's the answer :

As I see it it comes down to reading the powerstructure in the market. When you monitor the 2 min Gaussians (volume fine sweeping) on the YM long enough, you do see that the market has a "pulse". A definite rhythm whereby any variation is a signal. On the YM R2R and B2B is preceded by Gaussians each of which tells you, relatively what is cooking.

 

[Babak]

I agree with you 100% here. All I'm saying is, atleast make sense!

I am not dictating that everyone use volume or discard it. Or that they use it in a specific way, if at all. I'm just saying, think through the assumptions that are implicit in the explanations about volume bandied about or given in TA books.

I've started thinking through things and I'm just sharing with others where I'm at right now. I have no idea where this will go but for now, I'm developing my own style and sense of the market.

Again, I don't require that anyone agree with me. All I ask is that atleast, they be coherent and make sense; give reasons, arguments, etc. not just parrot what they've heard or read and make assertions without any logical reasoning...which I think is your main point also.

Quote from Thunderdog:

There are as many different views about volume (both nuanced and general) as there are people expressing opinions. However, as I had suggested in other, unrelated threads, I think that most opinions about market variables are lost in context. Different people see and trade the markets differently. The manner in which one trader employs volume for his method may not necessarily apply to another trader using an entirely different approach to the markets. Therefore, I believe that the definitive response is to do your own testing on your own method. Personally, I employ volume more often than not, but not in any manner that I have seen or read here or elsewhere. I have found that the standard use of volume, as covered ad infinitum in books, was of no use to me. My use of volume is exclusively the product of my own observation, analysis and testing. And as useful as I find it, I surmise that it would probably not work for your method in quite the same way, if at all.

Reading what other people have written is interesting and offers a window into how other people see things. This may or may not spark inspiration. But to accept any opinions without thoroughly testing them on your own method would be downright misguided, no matter how valid those opinions may be. Apples and oranges.

 

[Grob109]

Quote from Babak:

[BGrob109 (Jack H?):



The focus of these guys is incorrect and they got there using CW. If and when they look more closely where they look they are going to see something quite to opposite of what they reason to be the case.

So you're saying my focus or our focus is incorrect. I get that. What is CW? You lost me. If we look where we look we're going to see something quite the opposite of what we reason to be the case? So I guess you're saying that we're missing something and if we look where we look (where else can you look but where you look? ) we'll see its the opposite of our conclusions.

ok, that's a really long and convoluted way of saying that you think we're wrong. You've said that in several places. I get it. You think we're wrong.

[/B]

Sorry I am plaguing you by my comments.

CW means conventional wisdom.

You are focused on high levels of trading volume where there is much agreement on price. I do not comment on "value" I am speaking only of price. You draw conventional conclusions about what is going on and it largely is a focus on recent history.

By focusing on what stops trading it is possible to get to the place of understanding how and when trading again resumes.

The cycle of making money involves volume at all times.

A specific sequence is:

1. Volume declines and price reaches a steady state value where there is no change or just a very slow drift downwardin price. There is no market action.

2. At this time and condition there is a disagreement on price between current holders and potential buyers. One group is smalller than the other. The smaller group is in control and the larger group has no control.

3. As time passes the current owners and the potential buyers who are most likely to transact go through reevaluation of their price consideration.

4. Market orders prevail in the small volume that is extant. These are coming from either side of the market.

5. Any new "informing" data can affect the dissagreement among the owners and potential buyers. Theories abound on how all market information is absorbed by the market. One can always see the size of the groups near to the trading price.

6. At this time when new information arrives, it is observable as the how the information affects the size of the nearby groups. No one need track the new information per se. What is important to do is observe the size of the groups near the trading price.

7. Long before the trading price changes it is very apparent that there is nothing that can stop the pending change coming up for the very reason that the smallest nearest group is dissolving to no size at all.

8. The prior step is where the first derivative of volume goes from 0 or a persistant low constant to an accelerated value. That is, the volume velocity is seen to be increasing from a constant prior very low value caused by just a variety of market orders hitting.

8. Once one such group has dissolved other same sided nearby groups will follow suit. Those left standing on the opposite side of the trade will "react" in some manner. The usual manner is known as "chasing price".

9. Those who follow lagging indicators of price will soon begin to observe the increased volume that is being recorded over time.

10. Static price dissagreement has come to an end and continuing reassessment by the groups of owners and potential buyers nearest to price becomes very dynamic. This is observable.

11. At some point a continuing rather fixed level of unbalance will be maintained. Like sand flowing through an hour glass. One side of the market continues to dissolve through trades and the other side is increasingly left standing rooted to the spot where the market moves away from them.

12. The rather fixed level of unbalance most often does have a periodic ebb and flow associated with it. This transient is continually reverting to the rather fixed level of unbalance for a relatively long time (many ebbs and flows). The market is said to be trending in a channel by this point.

It is unfortunate that most trading platforms and associated software only present one side of the story. With any price change a new never seen before of data drops into the picture having whatever size that appears. Watching the new size data appear is an important event. There is also the dynamic of size changes caused by arriving participants on both sides of the then traded market price.

Maybe if you look at the market and detect the items noted above by looking at what you are watching, you will no longer just see what you say you see. Maybe you will see something else instead or something just along side of your observations.

When I mentioned the opposite, I meant the opposite of volume building that you see. This opposite, on the other hand, is the dissolving of one side of the market and how it, precisely at that moment, causes price to shift when the smallest group on one side goes to zero.

What causes price to change is the advent of the absence of one side of the market auction. Lookiing at the volume of that dissolution is where the action is.

At some point, dissolution fails to go to completion and that is what signals the beginning of the end effects of trends. As a trend continues the smaller group size increases from group to group. This means that for market pace to continue steadily it takes more volume velocity to sustain a given trend pace. At some point the sustainable volume is not met and the pace and trend begin to arrive at the beginning of the end of the trend.

Since it is apparent that trends overlap, determining what represents endings and what represents beginnings is important to know. It is especially so with respect to lateral trends when and if they appear.

So I amplified on one of my points that you responded to. I'm sure my amplification is more muddling from a muddled mind, as you quickly learned to discern in your trading career.

I wasn't trying to explain to you that you are wrong. I simply stated that you are on the wrong track.

This is your thread and you want it done your way and not in a manner that is otherwise. Conventional Wisdom is what you want verified in a manner that makes the verification work for your perceived needs.