Iterative Refinement

[gravitonium77]

Yesterday’s quiz and answer on what the pv relationship is fundamentally about really caught me off guard. Ultimately, the correlation between volume pace and price movement is a statistical one (ie, it is quite apparent that the correlation exists, but it is not absolute, it does not hold 100% of the time).

Which begs the question, how can you employ it on a bar to bar basis. I can honestly say I’ve done my best to absorb the info in the pages of these journals and am not aware of any clear discussion on this.

Please view the attached portion of yesterdays chart to see what I mean.

Bar a- outside bar and IRV to form pt3 channel down

Bar b- IRV but on lateral movement indicating change is immiment, as price closes LM I look to YM, which also shows LM on IRV which indicates change immement. Volume increases but range declines. YM in LF so hold.

Bar c- DRV on declining price, indicates change; volume decreases but range increases. Last YM close shows IRV so hold. BUT WHAT IS MY PERMISSION TO SEE YM HERE?

Bar d- IRV with LM indicating change; volume increases but range decreases. YM in LF.

Bar e- IRV with LM indicating change, volume increases but no change in range. YM in LF so hold.

Bar f – DRV with LM indicating change, but volume and price are both shrinking. YM IRV so hold.

Bar g – IRV on equal range with LM.

Is this correct procedure to be constantly looking at the YM through this sequence, and what about bar c where it appears one doesn’t have permission to look.

My apologies for a long post, I admit I’m bewildered with the task of integrating this concept which clearly is not an absolute in terms of bar by bar analysis.

 

[R/R]

Quote from Talas:

...
After considering the 13:45 bar of 05/07 a little more, perhaps a more precise way of stating the reason for reversal might be that we had IBV within a pennant <i>but remained in the pennant </i> (i.e. did not break out). When we have increasing volume while in a pennant, we anticipate price should BO of the pennant in the direction of the increasing volume. This is WMCN. Since WMCN did not, we consider this to be a change in sentiment. If we had an increase in volume causing a BO of the pennant, we expect to see more increasing volume; otherwise, we have change. So, perhaps, the DRV on the 13:50 bar could actually be the 2nd indication of change visible on the ES5M ? (the first being IBV but no formation BO)

Thanks for your efforts, Spyder, guava, and others.

- Talas

(IBV = incr black vol)
(DRV = decr red vol)

First thanks to Guava for putting his charts out with the detail that offers ideas for discussions like this.

I agree completely with your statement except I wouldn't have used the term "change of sentiment" there.

The point of my post http://www.elitetrader.com/vb/showthread.php?s=&postid=1914343#post1914343
was that Guava had provided a nice bar by bar analysis that I believe gave his action points at the end of the bar using the ES and YM. Ivo and then I questioned the reversal action at this point in time (close of the 13:45 ES bar).

No doubt the anticipation of change was there due to the reasons cited, but no dominoes had fallen to signal actual change as of this point using the ES and YM, which I believe is required to take action in this type of exercise.

The ES closed within it's top two pair and the YM had broken out of it's pennant and the RTL on increasing volume to close on it's high. This is change???

The next bar of course provided the actual change. FBO, Shift from top two pair, IF1, IF2 on the YM, IBGS, OSB - you have them all! There was never an debate about that.

 

[Tums]

Quote from gravitonium77:

Yesterday’s quiz and answer on what the pv relationship is fundamentally about really caught me off guard.

Please do not take this as a condescending remark or belittling comment, this is a reality check:

If there are 10 steps in this journey, you have got off step zero, but have not past step one yet.

Ultimately, the correlation between volume pace and price movement is a statistical one (ie, it is quite apparent that the correlation exists, but it is not absolute, it does not hold 100% of the time).

Press on ! More delightful surprises are awaiting you.

 

[treeline]

Quote from Spydertrader:

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

Price will continue in one direction as long as Volume increases. Decreasing Volume will lead to Price changing direction.

Edit: I see that Spydertrader buzzed an incorrect answer that was very similar to mine, so I assume my answer is also incorrect...

 

[LostTrader]

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

I would have expressed it this way:


Price (the object) can only be moved by Volume (a.k.a. the energy).


20 words or less...

To expound:
More energy means more movement barring interference (a.k.a. Support/Resistance).
Without energy, the object drifts in a non-gravity envoronment (a.k.a. lateral, or consolidation and centering).

best regards....

 

[gravitonium77]

Quote from Tums:

Please do not take this as a condescending remark or belittling comment, this is a reality check:

If there are 10 steps in this journey, you have got off step zero, but have not past step one yet.




Press on ! More delightful surprises are awaiting you.

Not taken as such. My post was from exactly the point of view of step zero. I have always considered myself a self starter, able to easily figure stuff out on my own ( with a little help from the library usually). In this case I'm just as baffled as can be. Their is a paradox, or superficial ambiguity if you will; and I do not know how to proceed other than just continuing with the work. It is however, most bothersome, not knowing if I"m making some huge errors without even realizing it.

If this is an instance of something I must figure out on my own, so be it. Often others are willing to help or hint, so I thought I'd at least put out what I was observing.

I've attached todays work so far, very difficult first hour for me.

 

[sscott]

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.

Spydertrader,

From what you and others have posted, I conclude:

Normally, volume leads price. Price volatility and direction is proportional to volume. Large volume means anticipate high volatility and dominant direction. Small volume means anticipate low volatility and non-dominant direction. If not, expect change.

35 words.....

 

[guavaman]

Quote from gravitonium77:

It is however, most bothersome, not knowing if I"m making some huge errors without even realizing it.

If you are in the Futures Journal than you most likely are 'making huge errors w/out even realizing it', just like all those farther down the path had done. However, the answers and the ability to ask the right questions do lie ahead .

 

[forty6n2]

hope i'm not way off on this but here is my take.
volume leads price, there are formations for both as they occure in sequence. Sequences of volume formations determin continuation, change, and volatility.

 

[R/R]

Quote from gravitonium77:

... What you post R/R is exactly what I have come to understand as what we wish to see for a LONG....

sorry for responding so late. As you said regarding my post: http://www.elitetrader.com/vb/showthread.php?s=&postid=1914343#post1914343
"context is king", so please understand that the signs to anticipate change (referring to the long position) were there in the ES. Signs of actual change had not appeared IMO. As beginners we reverse on a complete data set indicating actual change, again, IMO.

Please understand the two context issues that seem most apparent here that do not favor LONG.

1) increasing volume inside a forming or actual pennant (not breaking out) is not to be expected so anticipate change.

2) increasing volume with price decreasing in volatility as it attempts to press forward is a signal to anticipate change. Spyder has called this "price struggling to improve". It is being constrained by pressure from the other side of the market.

Others have already stated these points but I wanted to reiterate them for you.