Price and Volume
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db,
Here's a post from a beginner who's trying to learn as much as possible from this thead.
I finally saw the light on how misleading colored volume bars can be, after reading the demand/supply white paper and also a book named "Trading on Volume-Cassidy". I've removed color coded volume bars from all my charts. I did the same with MA's as after scanning about 400 charts this weekend, I saw that they didn't take me anywhere...
I'm trying to educate myself on reading charts using only price and volume to understand what's going on on my target instrument. I have to admit, it's not as easy as reading your annotated charts... but, I'll get there.
On accumulation and distribution:
"
The demand/supply text says on page 3 "Third, when prices hit the low end of the trading range in the base (the demand line) volume should remain low).
"
I'm having difficulties understanding this aspect as I'd think that when prices reach the demand line, volume should INCREASE as more people would be interested in picking up shares and when prices hit the Supply line volume would decrease and there aren't enought buyes... this would put the stock in a trading range.
I know that this question might be very very basic for some of the folks in this forum and I apologize for that.
Can you clarify this please? Also, if you have any archived samples of this situation that would help me understand the event, I'd appreciate it.
Thanks a lot.
Here's a post from a beginner who's trying to learn as much as possible from this thead.
I finally saw the light on how misleading colored volume bars can be, after reading the demand/supply white paper and also a book named "Trading on Volume-Cassidy". I've removed color coded volume bars from all my charts. I did the same with MA's as after scanning about 400 charts this weekend, I saw that they didn't take me anywhere...
I'm trying to educate myself on reading charts using only price and volume to understand what's going on on my target instrument. I have to admit, it's not as easy as reading your annotated charts... but, I'll get there.
On accumulation and distribution:
"
The demand/supply text says on page 3 "Third, when prices hit the low end of the trading range in the base (the demand line) volume should remain low).
"
I'm having difficulties understanding this aspect as I'd think that when prices reach the demand line, volume should INCREASE as more people would be interested in picking up shares and when prices hit the Supply line volume would decrease and there aren't enought buyes... this would put the stock in a trading range.
I know that this question might be very very basic for some of the folks in this forum and I apologize for that.
Can you clarify this please? Also, if you have any archived samples of this situation that would help me understand the event, I'd appreciate it.
Thanks a lot.
Well, the question may be basic, but I doubt that more than a few have a basic understanding of the answer.
I suspect that it hasn't been long since you got rid of the color-coding. If so, it's going to take a while to adjust to the idea that volume in and of itself has no good or bad connotations. All volume signifies is number of shares traded. Only by relating the volume to the bar does the volume carry any implications.
If there is a lot of volume and price is declining, you can assume that supply has the upper hand. That's why you don't want to see increasing volume as you reach support. If there is any volume increase, you want to see it on the way up, not the way down. The reverse is of course true at resistance.
You're going to have to look at a lot of charts before this becomes clear to you, much less second nature. But if you remember the first time you looked at a chart and had no idea what all those lines meant, you'll have some idea of what it means to learn a particular way of seeing, or of perceiving reality.
042204
Even though the law of supply and demand operates in a slightly different way in practice than it does in theory, it is a law, and there's no getting away from it. It's also simple, and doesn't require long-winded explanations.
As for the principles of support and resistance and of the relationships between price and volume, these aren't quite so simple, but they aren't terribly complicated, either. And once they've been expressed, all that's left is examples, which I've made an attempt to provide in this journal.
However, when one reaches the point where the examples become redundant, it should become clear that the principles are operating just as they have for thousands of years, and yet another example is unlikely to light up the landscape. One must, at some point, make the transition from seeing what was to seeing what is, and that can take anywhere from days to years.
Therefore, unless I see something that I think is especially interesting, I won't be posting charts every day. Or possibly every week. But I'll continue to monitor the thread in case there are any questions.
Even though the law of supply and demand operates in a slightly different way in practice than it does in theory, it is a law, and there's no getting away from it. It's also simple, and doesn't require long-winded explanations.
As for the principles of support and resistance and of the relationships between price and volume, these aren't quite so simple, but they aren't terribly complicated, either. And once they've been expressed, all that's left is examples, which I've made an attempt to provide in this journal.
However, when one reaches the point where the examples become redundant, it should become clear that the principles are operating just as they have for thousands of years, and yet another example is unlikely to light up the landscape. One must, at some point, make the transition from seeing what was to seeing what is, and that can take anywhere from days to years.
Therefore, unless I see something that I think is especially interesting, I won't be posting charts every day. Or possibly every week. But I'll continue to monitor the thread in case there are any questions.
The market always tells you what to do. It tells you: Get in. Get out. Move your stop. Close out. Stay neutral. Wait for a better chance. All these things the market is continually impressing upon you, and you must get into the frame of mind where you are in reality taking your orders from the action of the market itself â from the tape.
Your judgment will become poorer from the very time when you decide that you know more about the market than the market is telling you. From that moment your results will be unsatisfactory, for in this trading business the tape is the boss. You must learn to obey its orders, doing exactly what it tells you. When you can accomplish this, you are on the high road to success in your stock trading.
-- Richard Wyckoff
Your judgment will become poorer from the very time when you decide that you know more about the market than the market is telling you. From that moment your results will be unsatisfactory, for in this trading business the tape is the boss. You must learn to obey its orders, doing exactly what it tells you. When you can accomplish this, you are on the high road to success in your stock trading.
-- Richard Wyckoff
Indeed. I know people who've spent all kinds of money on courses and software and who've studied this for at least several years and can do the most beautiful analyses you've ever seen. But when it comes right down to the application in real time, they can't move.
Whether one is going for discretion or the mechanical, at some point he has to deal with the issues of psychology and probability. Wyckoff, Livermore, et al are all of help here, but Mark Douglas is more likely to put one over the top. Many of the quotes I've sprinkled around address these issues.
Of course, the "knowledge" that one has may not be true, which leads to all sorts of other issues, depending on where the "knowledge" came from.
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