Price and Volume: Strategy

[dbphoenix]

Quote from mdl060374:


PS: From your above post, are you JUST trading the Es and NQ or tracking them while trading individual stocks.

I know it doesnt matter per se (b/c the concepts are the universal concepts), but I was asking more out of a curiousity standpoint.

No, it doesn't matter.

As for stocks, I buy them only at turning points, e.g., Mar/Apr '03. The in and out thing doesn't work for me with stocks. Otherwise, I trade only the NQ. I use the ES only for confirmation of what I'm planning to do in the NQ.

As for the volume, we're trained to think of volume in the wrong way. It can take a surprisingly long time to get all that out of your head.

 

[dbphoenix]

060904

The attached chart illustrates the comments I made today beginning at the open. I believe I got all of them. If not, you can fill in what I left out.

 

[dbphoenix]

I suppose I should point out the obvious, that when you're testing ideas on old charts, you should scroll through them bar by bar from the beginning of the day rather than just print them out in toto and curl up with them.

If you're looking at what turned out to be a trend day, for example, and you wonder why you didn't see the signs, you're going to have a very different perception of the early activity if your right edge stops at, say, 10:30 than if it stops at 16:15. By the end of the day, those early bars may end up looking like little dots, whereas in real time they looked very different, which may account to a large extent for why you have so much trouble recognizing these signals when they occur.

If you're going to print out charts to save, then, scroll up through, for example, the first hour and save that, then up through the first two hours and save that, and so on until the major action has run its course (one chart may be sufficient for a chop day).

Of course, if whatever you're using doesn't scroll, then get something that does. Otherwise, there's little point in saving the charts at all.

 

[timbur]

DB,

Does BigCharts offer scrolling charts? I looked but didn't see it. I'm pretty certain StockCharts doesn't offer scrolling charts. (I'm a member and appreciate Chip from long ago.)

Thanks for the suggestion to write the major concepts down yourself; it helps clarify the concepts and keeps you focused on the major ones.

 

[dbphoenix]

Prophet.net has scrolling Java charts. However, if you're backtesting, you're better off getting the free TC2000 disc and not subscribing to the data feed.

But there's a limit to how cheap you can be if you're serious about learning how to trade. The least you can do if you've made any sort of commitment to the process is subscribe to SierraCharts, which is next to free. If you still haven't decided, Prophet should be enough for the time being.

 

[dbphoenix]

If anyone is planning on studying PV in old charts this weekend, I suggest you start with something simple.

The attached chart is a modification of the first chart I posted in the old thread. Note the gray lines and the annotations regarding the relationship of volume movement to individual and groups of price bars.

Volume reflects the number of transactions. You can think of it as effort. You'll better understand the fundamental principle of PV if you understand how all this effort, or lack of it, ends in a particular result.

For example, a long volume bar reflects a lot of transactions. What's the result of all that effort? If it's a white bozo, then substantial supply was overwhelmed by even more substantial demand (if neither were substantial, the bar wouldn't be long). If it's a dark bozo, then substantial demand was overwhelmed by even more substantial supply. If you wound up with a doji, it was a draw. A bear spike or a bull spike tells a different story.

Therefore, forget about S/R, TLs, patterns, and all the rest of that. Focus on how much effort is implied by each bar and what the results of that effort are. If you don't understand this, you won't understand any of it.

 

[dbphoenix]

Trading with confidence has to do with having a method which you have proved yourself, and which you know will win over time if you follow it consistently. That means being able to recognize the conditions which allow you to trade, and only trading when they are all present.

This is comparatively easy with hindsight: when we're actually there, we can see when all the pieces fit. But beforehand, we don't know that all the pieces are going to fit: so we trade because we're impatient and fear that this maybe is the best we'll get.

Well, somehow we just have to get to be patient. Let's face it, it calls for great discipline.

--John Percival

 

[martied]

"Therefore, forget about S/R, TLs, patterns, and all the rest of that. Focus on how much effort is implied by each bar and what the results of that effort are. If you don't understand this, you won't understand any of it."

DB,
Excellent advice. I am beginning to understanding the market rather than mechanically following indicators. This is the best post I have found on the use of volume and understanding why/what the market is doing. Keep it up.

martied

 

[dkm]

db,

I attach a daily chart of NQ. Although price has recently broken up through the intermediate term down trend beginning in January, I view the current price action as a sideways range from mid March, particularly with the evidence of support mid May. I would be interested to hear your point of view as to where we are presently in the accumulation / distribution cycle.

 

[dbphoenix]

Quote from dkm:

db,

I attach a daily chart of NQ. Although price has recently broken up through the intermediate term down trend beginning in January, I view the current price action as a sideways range from mid March, particularly with the evidence of support mid May. I would be interested to hear your point of view as to where we are presently in the accumulation / distribution cycle.

Technically, there is no downtrend since the last reaction low in December was never broken. Your "downtrend" line is more accurately a supply line, if you're interested in Wyckoff. Since you're looking for guidance from both the Montagues and the Capulets, this may create some confusion, but you pays your money and you takes your choice. As for the sideways trendlessness, you are correct, though one could argue that this is merely an extension of sideways action reaching back to November.

Not sure what you mean by "where we are in the A/D cycle". There's been no serious effort to the upside (use weekly charts for this), and the only serious effort to the downside, in April, was choked off quickly.

Volume has trailed off since then, and as long as activity remains relatively quiet, some productive work can go on. But I suggest you also follow the weekly charts of four or five representative stocks in order to establish and maintain a link with reality.