Is volume analysis useful in index futures?

Scataphagos said:
It's been chewing on my subconscious since you posted this....

When there is a big spike in volume, is there not a big movement in price? Expressed another way.... is there ever huge volume without big/significant price movement?

If my premise is correct, then the volume spike which accompanies a turn in market direction is merely ancillary... saying the same thing as the price move. And as such, consideration of the volume is of no value.

I know... I disagreed with you yet again and got your knickers in a twist. But before you pop a vessel, give it some thought.
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It could be of some value if it confirms price or probable price action. Take for instance a doji bar on extreme high volume. What does that tell you? What would the same doji bar without a peek at volume tell you? What if it is extremely low volume on the doji. What does that tell you?
 
lcranston said:
Volpri is to be congratulated for doing an excellent job of analyzing his chart in terms of candlesticks and candlestick volume. However, there is an alternative and perhaps simpler means of analysis looking only at price and volume (some might also find it to be easier).

Since this is an index futures contract, there are no gaps per se except for Friday close to Sunday open, and not always even then, and if one wants the "full picture", including the overnight activity can be helpful, as can be the context provided by the previous day's end-of-day activity.

In this case, an expansion of volpri's chart, there is a relatively minor "cascade" just after 1400 resulting in what appears to be a "selling climax". There is nothing to be done here since the downtrend is still intact. This is followed by a volume climax and a simultaneous test of the "selling climax" low (volume climaxes and selling climaxes need not be simultaneous and in fact often occur separately, the price climax serving as a wake-up call to those who've been asleep at the switch). To many price traders, this would be enough to warrant a long entry, but others would wait until the stride is broken. There is another test at about 1800 which doesn't go anywhere, but neither is the stride broken, so price could well continue its decline. In any case, there's no reason to do anything but watch.

The stride is broken at about 2000 and price drifts sideways. There is a very minor test of supply after 2100, but there is no selling interest (if there were, price would fall). Absent selling interest, price rallies then digests its gains until about 0800 (most traders have been asleep until now, but the prelude to the beginning of NY "real-time hours" provides important information).

Price then continues its upward bias, tests the top of the multi-hour range, and thrusts upward into the open (note that if one opens his window, what appears to be grind is actually a series of thrusts and retracements). The volume displays a surge of trading interest. That the interest comes chiefly from buyers is indicated by the fact that price rises (if it were coming from sellers, price would fall). Finally, after lunch, the stride is broken, which many would use as a signal to exit and stand aside for either a signal to short or a signal to participate in a continuation. As to further volume indications, there's no need for any. Price itself with its thrusts upward, shallow retracements, and unbroken stride suggests the continued move upward. Until the stride is broken, volume is largely irrelevant. However, at those junctures where buyers and sellers are each attempting to assert their dominance, volume -- i.e., trading interest and activity -- can provide an important component to one's trading decisions.

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That is viable way to trade. I just prefer looking mostly at RTH as that is when most activity is present but i also look at the OVERNIGHT session especially before the open of the RTH. Usually i am looking for patterns formed during the overnight. It is kind of a prep for the open of the RTH. But my detailed analysis is usually only done in RTH because I ain't staying up all night to watch the overnight session.
 
Scataphagos said:
When there is a big spike in volume, is there not a big movement in price? Expressed another way.... is there ever huge volume without big/significant price movement?

If my premise is correct, then the volume spike which accompanies a turn in market direction is merely ancillary... saying the same thing as the price move. And as such, consideration of the volume is of no value.
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Leaning back on Ye Olde Price Theory... I always think in terms of the neighborhood farmer's market: can I tell a tale about what (price; volume) I see in front of me, that I might see in a farmer's market?

So! Big spike in volume + [no] price movement = two converging, offsetting, agendas, executing simultaneous in the market. To wit: from a steady state, a rickety pick-up truck pulls up, loaded to the gunnels with *ripe* (read: "use-or-lose") tomatoes. Result?? Out come the Sharpies as everyone attacks their tomato price/pound signs to lower lower lower.

Then suddenly! Up pulls an *empty* pickup truck, with the words "Jockamo Upper Crust Pizza*" on the side, and out comes a nervous-scared looking crew with orders to "Buy every tomato you can see" as they just got orders to serve 3,000 people, "if [they] can handle it."
Result??
Total offset to tomato truck; all the Sharpies get re-capped; no prices change; LOTS of tomatoes change hands.

In the financial markets, it's an order to liquidate ("Sell down to x-minus-10points, then let it recover, unless you hear otherwise.") meeting an order to build ("Buy at x up to x+10, but if it drops, don't let that opportunity get away...")

The discernment of offsetting agendas (via volume) is what lends confidence (or caution!) to notions of the market's near-term direction. Loss of selling pressure versus met/exceeded buying pressure? It's all right there, laid out.
 
volpri said:
It could be of some value if it confirms price or probable price action. Take for instance a doji bar on extreme high volume. What does that tell you? What would the same doji bar without a peek at volume tell you? What if it is extremely low volume on the doji. What does that tell you?
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Nothing of value.
 
tommcginnis said:
Leaning back on Ye Olde Price Theory... I always think in terms of the neighborhood farmer's market: can I tell a tale about what (price; volume) I see in front of me, that I might see in a farmer's market?

So! Big spike in volume + [no] price movement = two converging, offsetting, agendas, executing simultaneous in the market. To wit: from a steady state, a rickety pick-up truck pulls up, loaded to the gunnels with *ripe* (read: "use-or-lose") tomatoes. Result?? Out come the Sharpies as everyone attacks their tomato price/pound signs to lower lower lower.

Then suddenly! Up pulls an *empty* pickup truck, with the words "Jockamo Upper Crust Pizza*" on the side, and out comes a nervous-scared looking crew with orders to "Buy every tomato you can see" as they just got orders to serve 3,000 people, "if [they] can handle it."
Result??
Total offset to tomato truck; all the Sharpies get re-capped; no prices change; LOTS of tomatoes change hands.

In the financial markets, it's an order to liquidate ("Sell down to x-minus-10points, then let it recover, unless you hear otherwise.") meeting an order to build ("Buy at x up to x+10, but if it drops, don't let that opportunity get away...")

The discernment of offsetting agendas (via volume) is what lends confidence (or caution!) to notions of the market's near-term direction. Loss of selling pressure versus met/exceeded buying pressure? It's all right there, laid out.
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Theoretically there can be a big volume spike with little change in price. If that occurs, then the volume means nothing. Then again, how often does that happen?
 
Scataphagos said:
Theoretically there can be a big volume spike with little change in price. If that occurs, then the volume means nothing. Then again, how often does that happen?
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Actually it tells you that a great many traders are involved in these trades and, presumably, their outcome. This phenomenon is common during churning. This may mean nothing to you, but that does not mean that the volume is of no importance in the absolute.
 
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Scataphagos said:
Theoretically there can be a big volume spike with little change in price. If that occurs, then the volume means nothing. Then again, how often does that happen?
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As depicted above, three times on Friday by 12 noon.

(But again, volume tells (at least half) the tale.)
 
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lcranston said:
Actually it tells you that a great many traders are involved in these trades and, presumably, their outcome. This phenomenon is common during churning. This may mean nothing to you, but that does not mean that the volume is of no importance in the absolute.
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It can be "important as all get out in the absolute" (whatever the Heck that means)... but is it important to a trading decision? I say NOT!
 
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