Iterative Refinement

[Spydertrader]

Quote from Padawan:

Large volume means lots of volatility. Small volume means low volatility. If not, expect change.

Quote from Padawan:

Volume leads price.

Quote from WGTrader:



Price volatility is proportional to volume

Now, try to say the above quoted posts in a succint unbiased (with respect to long or short) fashion, and you'll have the essence of what I want everyone to understand.

- Spydertrader

 

[ehorn]

Quote from Spydertrader:

Short Quiz: Define the Price - Volume Relationship in 20 words or less

...not sure about the word count but it is what my answer would be on a quiz

http://www.elitetrader.com/vb/showthread.php?s=&postid=1899452#post1899452

 

[TIKITRADER]

ES M8 Daily Chart May 8 / 2008


ES daily bar made a LL and a LH on decreasing volume and closed towards its lows. Daily bar had decreased volatility today.

 

[cnms2]

Just looking at ES, although the pennant's second bar has higher volume, its PRV decresed. This could also be seen on the 1 min chart too. ES' tic chart shows that the red translations happened on higher volume than the green ones. All are subtle signals, but they are there.

Quote from R/R:

chart
I am having a difficult time seeing a reason to reverse from long at this instant (13:50 = the end of the 13:45 ES and 13:48 YM bars).

Agreed - one does not expect increasing volume in a pennant but is that a reason to reverse here at this moment?
The ES is starting to BO the RTL of the accelerated short channel. The Previous bar BO the RTL of the long channel on decreasing red volume which became an FTT. WMCN if long is black.
edit: had trouble inserting chart, then forgot to comment that the YM (un-annotated playback charts) also made an FTT, Sym pennant BO and RTL BO.

 

[Atari]

Three words over, but maybe the last sentence is unnecessary ... giving me the magic number.

 

[romanus]

A very important post IMO:

http://www.elitetrader.com/vb/showthread.php?s=&postid=1584139#post1584139

Quote from Spydertrader:

Unless and until one understands (and I do mean fully understands) the relationship between Price and Volume in an overall sense, then thinking one can locate understanding from a 'tool set' will result in disappointment.

The market operates the same way on all fractals. Time remains the only difference. Yearly, monthly, weekly, daily, 5 minute, two minute or OTR charts all show the exact same relationship between Price and Volume. Channels provide the context, and Gaussians show the way. The learning process resembles the very same dynamic of completing a puzzle. One does not know which piece provides the clarity required to see the entire picture as a whole. However, once the 'piece' falls into place, each successive puzzle piece adds more clarity. Each successive piece does not cause one to 'forget' the image coming into focus.

The same is true within these many pages. I cannot know which piece creates the 'Aha!' moment across all personality types. However, I do know two things: I can describe the path that worked for me, and I can illuminate the terrain in which people currently find themselves deployed. The rest, like the goal to complete the puzzle, remains a function of time.

Perhaps, those that have already made the mental transition necessary to profit can assist those who have yet to reach their destination by describing what worked for them, and what was it that 'clicked' for them.

 

[cnms2]

Short form: Discrepancy in color or magnitude between price and volume signals change (on your trading fractal).

Long form:
Volume leads price.
Price bar's range is proportional to volume, when not: this signals change. IBGS signals change.
Volume of opposite color to the traverse, when above flaw level, signals change.

Quote from Spydertrader:

Short Quiz: Define the Price - Volume Relationship in 20 words or less

Since many people still find themselves confused with respect to the recent discussion, the above short quiz should shed some light on the areas still needing focus.

 

[Specterx]

My chart for the day.

Still on the black BG but I did change the colors for laterals and IB/OB so the price bars are easier to see.

 

[midtown]

Volume drives price

 

[romanus]

Something I am working on, may be helpful to others:


http://www.elitetrader.com/vb/showthread.php?s=&postid=1316994#post1316994

Quote from Spydertrader:

Attached, please find a chart (ES 5 min, Thursday, 01-04-2006, Final Bars of the Day) snippet showing one of the best examples of the PV Relationship. As the Pace (contracts traded per Bar) of Volume increases, so too, does (the pace of) Price Bar change increase. As the Pace (contracts traded per Bar) of Volume decreases, so too, does (the pace of) Price Bar change decrease. To put it in conventional terms, black volume (and price) represent the dominant traverse of the uptrend. The decreasing volume (and price) represents the non-dominant traverse (or retrace - highlighted yellow). When Volume returns to increasing (red) Volume we have our confirmed reversal - highlighted green.

<img src=http://www.elitetrader.com/vb/attachment.php?postid=1316994 >

http://www.elitetrader.com/vb/showthread.php?s=&postid=1465746#post1465746

Quote from Spydertrader:

Now, for educational purposes only, I want everyone to begin to calculate PRV on every bar and throughout the entire bar.

The process should go something like this: "What kind of Volume do I have now? based on that number (and color), what Volume do I anticipate at close of this Bar? How does the anticipated Volume compare to the previous Bar? How does the anticipated Volume compare to my last FTT bar? How does the anticipated Volume compare to the Peak Bar in this cycle?

Wash. Rinse. Repeat. Each Bar. Throughout the Entire bar.

Some Things you'll begin to notice:

1. Decreasing Volume of the same color as the previous bar showing a slowing down of pace and warning of an upcoming change in market direction.

2. Flaws appearing before an FTT.

3. Changing Direction in both Price and Volume within the same Price and Volume Bars (previously referred to as FT3's in this Journal).

4. Volume starting out as a slow pace or decreasing volume, only to change gears and show faster pace or increasing volume. Volume starting out as a fast pace or increasing volume, only to change gears and show slower pace or decreasing volume. Note what happens next after these two situation develop.

5. Slowing of Pace (the rate at which volume flows into the Volume Bar) often provides a warning of upcoming change. Increased pace shows continuation.

If this task becomes mentally draining, use one of the many PRV Tools posted throughout this Journal and log the observations made throughout the day. Use the debriefing time (at End of Day) to reinforce the lessons learned, and not simply as a means to critique the errors made.

The above exercise should show everyone, what they already have witnessed many, many times, but for whatever reason, the brain prevented them from 'seeing' correctly: Volume always leads Price.

http://www.elitetrader.com/vb/showthread.php?s=&postid=1468195#post1468195

Quote from Spydertrader:

Gaussians, in Combination with PRV, represent a visual definition of the Jokari Window / P-V Relationship. Pull up the attached .pdf and scroll down to the P-V Relationship. Read the following lines and then read the Jokari Window sentences (Symbolic Rendition):

Dominant Volume:

In an uptrend ....

Increasing black Volume with Increasing Price = Continuation

In a down trend ...

Increasing Red Volume with Decreasing price = Continuation

Non-Dominant Volume:

Decreasing Red Volume represents either a retrace of an up channel or lateral movement in a down channel.

Decreasing black Volume represents either a retrace of a down channel or lateral movement in an up channel.

The above Dominant / non-Dominant descriptions accurately portray what The Jokari Window represents: The Price - Volume Relationship with one additional corollary Jack added long ago: The Four O'Clock Drift.

http://www.elitetrader.com/vb/showthread.php?s=&postid=1807702#post1807702

Quote from Spydertrader:

… learn the fundamentals of the system, and of the P-V relationship, rather than, attempt to follow a 'laundry list' of instructions. The former will provide you with an ability to trade any market. The latter teaches you how to follow directions, and it doesn't do a very good job of that. Doing is what internalizes the process.

http://www.elitetrader.com/vb/showthread.php?s=&postid=1373917#post1373917

Quote from Spydertrader:

First, you need to understand your context. Already you have Price sitting at or near the right trendline (of the up trend). What other trends have dominated Price up to this point? Were we in a downtrend? Did Price move along laterally? Is Price close to breaking the right side trend line of that downtrend? Once you know the context, the Jokari Window provides easy answers as to how one uses volume to understand direction.

http://www.elitetrader.com/vb/showthread.php?s=&postid=1676937#post1676937

Quote from Spydertrader:

A trader must always know where he / she stands with respect to the ‘right’ side of the market. Within the analysis stage, we use the signals provided by the market in an effort to constantly update our mental compass with respect to dominant and non-dominant movement. Whether one trades only dominant traverses – entering on the RTL and exiting on the LTL – or trades at an SCT skill level commensurate with the appropriate resolution level doesn’t matter. Every skill level must know the ‘right’ side of the market. Volume (and by their function, Gaussians) lights the way for the trader to ‘see’ what comes next. The Jokari Window provides the Decision Matrix needed to correctly analyze the NOW.

http://www.elitetrader.com/vb/showthread.php?s=&postid=1785783#post1785783

Quote from Spydertrader:

The P-V relationship (See Jokari Window) combined with context (Channels and Gaussians) provides all the sufficient data required to trade profitably.

http://www.elitetrader.com/vb/showthread.php?s=&postid=1833108#post1833108

Quote from Spydertrader:

We use the Jokari Window in order to anticipate a change from dominant to non-dominant movement of Price and Volume. We then apply context to the environment in order to understand, "What must come next."

By example, Price moves lower on increasing Volume as Price moves through a Point Three Down Channel. As Price approaches a Left Trend Line, PRV indicates we should expect to see decreasing Volume by close of bar. When the current Bar closes, we note Price has created a Volatility Expansion on actual decreasing Volume. When we ask ourselves, "What must come next?" We know to expect to 'see' decreasing black Volume as Price retraces toward the Right Trend Line becuase we had received a signal for change from the market (See Jokari Window).

We then monitor Volume and Price expecting to 'see' the decreasing black Volume continue until Price reaches the Right Trend Line - where we expect to 'see' black Volume increase as Price breaks through the RTL.

We now add context, and "where we are with resepct to the right side of the market" in order to determine what new context exists (e.g. Did we form a Point Three? Did we break out of some sort of Lateral Formation? etc. etc.) Once we have a new dominant channel, we begin the whole process again.