Is volume analysis useful in index futures?

[volpri]

I do agree that the day before the weekend isn't the best way to illustrate something, but I fail to see what you are trying to show. (not too surprising because to be honest, I find it hard to understand what you say sometimes given the way you write)

But what stands out for me is that you don't make any mention of trades. You mention at one point "as soon as the volume stops, so does the price decline". Can we then infer you to mean that you go long? I hardly want to put words in your mouth, but the volume analysis, if it is to be useful, needs to provide a trade. If you want to see when selling stops, this mean that you also need to wait for one more bar to finish, in order to see the volume for that bar in fact is lower than the next bar, and then more often than not, you might have already missed the turn, if in fact there is a turn.

Case in point, your last example. Big down red bar along with very high volume around 11:10. Then the next bar is a green bar, lower volume... do we go long since the selling stopped? At 11:34, which is off your chart, the ES made a lower low since selling wasn't in fact over.

So my point is that your example doesn't really show anything when the name of the game is to put on a trade and make money.

Gotcha of course this is AFTER the PA but here is how i would look at this chart for actual trading purposes:

Example #1 Prior to his first example we see a tight trading range. Towards the end of that range but just before the BO south on the big red bar with high volume we see 3 bear bars with tails on top in that tight range. This at least for me indicates an impending probable BO south. However, most BO's fail but they can be good enough for a scalp. I would have shorted on the close of the bear bar (with the big tail on top) one bar before the big bear bar with high volume that he highlights. This trade would have only been for a scalp unless the PA on next bar or two after the big volume bar gives me a reason to hold the trade for more gain. That is, to continue to hold I would have to see a low close on the big volume bar or a decent follow thru bar after the big volume bar. As it turns out the big volume bar closed up (see tail) so i am exiting at that close or on the next bar. That is my scalp down.

Now when i see the close of green bull bar AFTER the big volume bar I am thinking big vol bar is a failed BO. The market is probally going back up to the top of the range. Why? Well the big vol bar had no follow through. The next bar is a bull bar. These two things tell me that some buyers have entered in otherwise the BO south would have had a good follow through bar. So, I am out of my short scalp and now I go long on that first bull bar after the big vol bar or I may wait for one more bar. It too was a bull bar. I'd then bet we are going back up towards the top of the range.

I'd go long place my stop 2 ticks below the tail of the big vol bar. Seven bars later on that red bear bar i would either decide to exit take my profits as I would be expecting a PB next on the agenda OR I might say to myself "self we just had four consecutive bull bars since the big vol bear bar then a doji then another bull bar followed by a bear bar and even it has a tail on the bottom, indicating still some buying pressure. So, i would reason we are probally getting a PB Next BUT it is doubtful the PB will reach my stop (because 4 consecutive bull bars with buying pressure is there) so I think I will hold my position and scale in long as we go down on this PB. That is, i would be averaging in as the market went against my paper profit from my first entry. That is ok as long as no scaling in happens below my stop.

Once the Pb ended I would be then holding for a second leg up towards the top of the range, which we got. After the first 7 bar PB it went up to form a double top at the very top of the range . It did have an an additional very small PB in that second leg up. But i would have held thru that tiny pb because prior to it there was ANOTHER three green bull bars with gaps. So we got 4 or 5 bull bars on the first leg up now 3 more bull bars so I am not jumping ship just yet.

This is followed by a double top. That is my exit point. Why would I exit at the DT? There are 4 reasons. 1) a double top formed. 2) Price is at the top of the previous range. 3) the channel is still down (context) 4) at the double top we just formed a wedge top i.e. 3 pushes up from his highlightED big bear bar. ALL that together is enough to make me jump ship and exit.

Anyway this is how i would be looking as trading this sort of PA as it unfolds. That can be traded this way without ever seeing the high volume on his first example. Why? Well.. most anytime you have a bigger bar than previous bars and it is breaking out of a range you know that it is doing so with relatively big volume. It is rare occasions that it would be otherwise. So one doesn't even need the volume bars but if it gives some confirmation comfort then one can look at the them. I just know that usually when i see a big bar on a BO most of the time is is going to be formed on higher volume that the previous bars.

I could take each of his examples and show how I would see them and how I would reason any trade but only if there is an interest to see it as takes me awhile to type. Some think I am a clown..a jerk..a troll. I may be any and all of them. Who knows? But i don't mind sharing my thinking if folks can look beyond my foolishness and see my reasoning. ROFLMAO

 

[volpri]

Hello. I found this picture off a different trade site during a previous selloff during 11/29. Does this count as volume confirmation? A lot of buyers and sellers would generate a much volume, but without price change. The candle after the green bar, the red doji, had the highest volume not counting the early part of the day, where volume is usually the highest. It was also very close to the day's low.

Ok context first. You got a tight channel down. It has at least 3 pushes down so it is a wedge bottom. You have to look at bear channels as bull flags in the larger scheme of things. That simply means that if this prolonged tight channel functions as a bull flag then chances are the BO will be to the upside, when in fact a Bo happens. If the Bo is south then expect at least two more legs down and simply a larger bull flag forming.

However, this BO was first indicated by bull bar you have shown with the low price. Thus we have a potential reversal bar at a wedge bottom. But notice I said POTENTIAL reversal. MOST reversal attempts fail. You have to wait for more info to decide if this reversal attempt is likely to succeed or not. All reversal attempts will have an attempt to make them fail.

So, the next bar (the famous doji bar on higher volume) IS the attempt to make the reversal fail. The bears who have been strong in the context (indicated by bear channel down) want to continue making the market slide south. So, they are battling the bulls on the doji bar. The bulls are pushing back hard. Hence we get higher volume on that doji as opposed to the vol on the reversal attempt on the prev bar. Who is gonna win? Don't know yet. Must wait for more info. The next bar is a good bull bar on a little less vol than the doji so bears aren't quite as agressive as price actually moves up on lower vol than the doji.

If you are feeling cocky you can go long on the close of that bull bar after the doji once you see it has closed high. Or you may choose to wait for one more bar to well sort of confirm the reversal.

Certainly by the close of the second bar after the doji you will want to be long as the reversal has been confirmed by PA and the bears for the moment are capitulating as we see less volume as the market creeps up with not so much pushing from the bears going on.

Again look at context. Market has been in a bear channel for a while so it is probably going to form a range now. So you will be looking to exit at any reasonable point of resistance. Since this was a successful reversal i would expect two legs up and would probally add on to my position on first PB expecting a second leg up. My stop would be at the bottom of the reversal bar as I would consider this a swing trade on an intraday time frame (i.e. two legs up)

So i suppose your question may have been why the bigger vol on the doji after the reversal bar? How does that confirm? Well it confirms bears are pushing hard to keep the bear channel headed south but bulls also are pushing back hard. The next two bars show who wins. Time to take a position.

 

[learner2007]

I could take each of his examples and show how I would see them and how I would reason any trade but only if there is an interest to see it as takes me awhile to type.

While there are some parts of your analysis with which I agree, and some points that I would not choose to apply, I think it is outstanding that you went into such a detailed explanation of your step by step analysis. I have seen very few examples of such on ET, and I would think that those new to TA would find such explanations extremely informative. And I would think that starting some sort of educational TA thread would be welcomed by many. I have often thought of starting one myself but as slowly/poorly as I type what you posted above would take me a whole day to type.

 

[lawrence-lugar]

Everything in trading...is a tool. of a tool. of a tool. -- and how you apply it, and understand it, and interpret it,
Nothing is an exclusive measure gauge all by itself. Everything is kind of interconnected in helping you make that judgement call.

Trading the market is truly part art, part science, -- and all of this isn't just philosophical hyperbole,
If you have a square, black and white mind and personality...trading is not for you.

Make Trading Great Again 2018...High-Five`

 

[learner2007]

While there are some parts of your analysis with which I agree, and some points that I would not choose to apply, I think it is outstanding that you went into such a detailed explanation of your step by step analysis. I have seen very few examples of such on ET, and I would think that those new to TA would find such explanations extremely informative. And I would think that starting some sort of educational TA thread would be welcomed by many. I have often thought of starting one myself but as slowly/poorly as I type what you posted above would take me a whole day to type.

While I wrote the above based on reading just one of your posts, and so I could be wrong, but I get the feeling you have done more study and work than most on the subject and would therefore be one to provide worthwhile commentary(not that I'm one to judge mind you!!).

 

[Laissez Faire]

Call me naive and/or isolated (and I'm not saying this facetiously or rhetorically: clearly I am naive on this point, and I'm certainly pretty isolated, compared with many traders, which was the primary reason I joined this forum) but I honestly wasn't aware that there were experienced traders who were "not convinced that volume might be useful in trading index futures", and am genuinely slightly surprised to hear it.

To, me it sees like volume analysis is one of those things that's simply accepted as truth without further question or even proof of it's utility. It just seems logical that it has to have some kind of value, right?

It's evident in this thread from your answer here and from many other posters.

 

[Laissez Faire]

My own feeling about volume, in general (though I can't substantiate this or offer realistic evidence for it, at all) is that for me, using constant-volume bars gives me probably about 75% of the available benefits of "using volume professionally" with about 1% of the extra work. Which suits me.

Interesting. I do happen to have volume charts in addition to my time based charts, but I wouldn't consider this to be volume analysis per se, although you're certainly using an aspect of volume in your analysis.

Mind me ask what kind of settings you use on your volume charts? Are these 'fast' charts and/or 'slower' charts?

I use 500V charts or less on ES.

 

[Laissez Faire]

Am I the only one here who swears by time-based charts? Price and time. Those are the twin pillars on which all else rests.

Setting aside the lofty (empty) rhetoric, my preference for time-based charts stems from the fact that, in this algo-driven market, the one universal denominator is time. That’s the page I want to be on.

I do.

What I don't like about volume charts and tick charts is that they're not consistent from day to day. A time-based chart is always 390 minutes. But I do think V/T charts can improve on execution.

 

[Xela]

Mind me ask what kind of settings you use on your volume charts? Are these 'fast' charts and/or 'slower' charts?

I use 500V charts or less on ES.

I don't trade ES (but that certainly sounds pretty fast, to me?). I routinely use two different "speeds" (for NQ, and for CL); with apologies I'm not really supposed to give details.

 

[learner2007]

To, me it sees like volume analysis is one of those things that's simply accepted as truth without further question or even proof of it's utility.

I think you will find that volume was recognized as a valuable part of TA as early as The Dow Theory. In the early 1900's it was not just accepted as such, but was studied in detail and presented in many books showing its value.