Price and Volume: Strategy

[zorrotrader]

Quote from dbphoenix:

Question (from today's NQ):

Is "A" a retracement in a downmove, or is "B" a retracement in an upmove?

Why?

Retracement of what?

Maybe "A" is a reversal of a trend and "B" is a continuation of the new trend. It seems to me that when considering strategy one must define retracement, reversal and continuation. Is there a difference between a retracement and a continuation? Does a retracement begin with a reversal? Does a continuation begin with a reversal. If a retracement is different than a continuation then the beginning of each must have different characteristics that can be defined.

Attached is another example from today's NQ trade. The first move of the day was up for 30 minutes. I traded the 10:00 and 10:05 bars as a reversal trade. Was the move preceding 10:00 a retracement? Did the retracement end in a reversal? The next post shows another view.

Lots of questions. Some of the answers may be price/volume principles and some may be specific to each traders risk tolerance, goals and time frame for the trade. I'm still working on the answers.

 

[zorrotrader]

Attached is a 15min view of the NQ from the past week. From this view todays early price action looks more like a retracement of a trend that started yesterday. the retracement ended with a reversal at resistance formed from last Thursday's price action.

 

[sulong]

Quote from dbphoenix:

Question (from today's NQ):

Is "A" a retracement in a downmove, or is "B" a retracement in an upmove?

Why?

Too much volume for "A" to be a ret., that leaves exhaustion volume, that creates a double bottom.

At "B" there is narrowing price bars with declining volume (not much selling interest)

Rising ma... B is a ret.

 

[jeg]

More likely to be B because of volume at A; suggest wait until t/l can be drawn from A. Mov. av. from dbp surely designed to mislead?

Extemely interesting & helpful threads.

Many thanks,

John G

 

[dkm]

Quote from dbphoenix:

Question (from today's NQ):

Is "A" a retracement in a downmove, or is "B" a retracement in an upmove?

Why?

The lack of increasing volume after the lower swing high at B suggests that downward movement of price will not be resumed, therefore B is a retracement in an up move.

 

[rognvald]

My view of S&R (red lines) - its a continuation
I din't (haven't) looked so I don't know the outcome

 

[dbphoenix]

You are all correct in pointing to volume as a clue. Peter was first here, though he didn't provide an explanation (I have no idea what a NihabaAshi Divergence is). The efforts to explain, then, are well-made.

However, don't go overboard in trying to assign cosmic meaning to the volume. Since there is no context, there's no reason to assume that the volume represents exhaustion; there could easily be a subsequent lower low with even stronger volume. And has been on other days. Which is one reason why I try to use "potential" SC rather than SC on the charts when I'm doing them in real time (in hindsight, it's obvious whether it was an SC or not, but that does you no good in real time).

Therefore, don't be too quick to draw conclusions. Volume is important, but there are several other things to consider. And, no, I'm not trying to mislead anybody with a moving average. An MA is a moving trendline and comes in very handy when used as such. It becomes confusing only when you slap on a lot of extraneous crap or get all bunched up with "channels" and patterns and whatever.

I've been saying for months now that anybody who tries to trade retracements or reversals without deciding ahead of time just what exactly is the difference is going to spend a lot of time trading counter-trend and in trading LSHs and HSLs as retracements and in trading retracements as LSHs and HSLs, forever placing himself on the wrong side of the trade.

Therefore, I see no reason to go on with anything else until these distinctions are made and these terms are defined. Nobody is going to have to give anything away by doing so.

But, please, none of this flag, pennant, wedge, Holy Graille, bowtie, avalanche, cup with handle stuff. That's just shorthand most often used by those who really have no idea what's going on. All that matters is the relationship between buyers and sellers.

And I hope that participants have determined S/R for the day.

 

[dkm]

I'll give it a shot:

1. A reversal is a change of trend or a change of direction within a trading range.

2. A retracement is a countertrend move that does not result in a reversal of the trend. It is usually accompanied by a reduction in volume. Resumption of the trend is usually accompanied by increasing volume.

This requires then definition of a trend:

An up trend is a series of higher swing highs and higher swing lows. A down trend is a series of lower swing highs and lower swing lows.

An up trend changes to a downtrend when price moves lower than the most recent higher swing low or a new lower swing high occurs. A down trend changes to an up trend when price moves higher than the most recent lower swing high or when a new higher swing low occurs.

 

[dbphoenix]

Quote from dkm:

I'll give it a shot:

1. A reversal is a change of trend or a change of direction within a trading range.

2. A retracement is a countertrend move that does not result in a reversal of the trend. It is usually accompanied by a reduction in volume. Resumption of the trend is usually accompanied by increasing volume.

This requires then definition of a trend:

An up trend is a series of higher swing highs and higher swing lows. A down trend is a series of lower swing highs and lower swing lows.

An up trend changes to a downtrend when price moves lower than the most recent higher swing low or a new lower swing high occurs. A down trend changes to an up trend when price moves higher than the most recent lower swing high or when a new higher swing low occurs.

I appreciate the attempt. Unfortunately, these are textbook definitions and won't be of much help in trading real time since the terms you're using to define ret and rev require defining themselves.

For example, what is meant by "change"? "trading range"? "higher"? "reduction"? and so on.

What exactly does one look for in real time? Not generally. Exactly.

 

[sulong]

Quote from dbphoenix:


What exactly does one look for in real time? Not generally. Exactly.

In real time, all we have to work with is "potential".

For instance, a reversal of a trend starts with an increase in volume, coupled with diminishing price advancement.

(At or near to a predefined prior S/R area)

At this point, we have a potential rev.
Not until price makes a low, and then a L/Hi,(up, rev. to down) do we have more conformation of a reversal, but still, we need a L/L to confirm it.