Trouble interpreting price and volume
- Thread starter abxs
- Start date
I agree with coolweb: whoever taught you PV analysis didn't know what he was talking about. Suggest you start with the thread below. There is also an entire forum devoted to PV at T2W.com.
http://www.elitetrader.com/vb/showthread.php?s=&threadid=29005
http://www.elitetrader.com/vb/showthread.php?s=&threadid=29005
http://tinyurl.com/z5vtu
One thing you may want to consider is that price action is of primary importance, that's the first thing you should be looking at, w/volume as a secondary consideration relative to it. Price constantly cycles between low volatility and high volatility, it trends and consolidates, that's all it ever does. The ranges prepare for the trends and the trends exhaust themselves into ranges. And of course they bleed into each other. Look at price movement and the bar spreads along w/the closes, this will show you what cycle you're in, high volatility or low. Volume can be very ambiguous, so look for 1) points where vol is at extremes for one or just a few bars and/or 2) areas where the overall vol pattern is different relative to the what has gone before, and/or 3) where vol is most clearly at odds or in support of price action.
For instance in the first 2/3 of your chart there is an obvious downtrend. Simple trendlines show us this if we can't see it w/the naked eye. At A there is extreme vol on a relatively very wide spread, which closes mid-point of its range. The vol alone suggests at least possible climatic action considering what has gone before and the close would seem to reinforce this. Then the next 5 bars, while creeping down, are really unable to make any kind of significant progress, w/only the last bar at B closing below the low of A, barely, on a bullish dragonfly doji w/a very long tail, a classic reversal bar on relatively strong vol.
This is followed by a loverly automatic rally to C, then a very bullish pullback to D, classic, a shallow retracement on very narrow spreads on low contracting volume. The second bar following D breaks above this little consolidation on a good spread closing near the high on very strong relative vol. It does not follow-thru, next bar down and price then consolidates sideways for the next 4 bars on narrow dojis and miniscule contracting volume and retracement thus far is nil.
You've chosen to end your chart at what Wyckoff referred to as an apex, possibly still evolving: From C to E price has been mostly consolidating following the automatic rally that follows a selling climax, as vol has been consistently diminishing since A, while bar spreads narrow and price swings contract, all the time giving up very little ground to the downside. I'd wait for some confirmation or refutation of the breakout before taking a position, but would have a bullish bias as of this chart, intermediate, until the next bar tells me something different. Hence why trading is really about placing stops and not necessarily making calls.
H
One thing you may want to consider is that price action is of primary importance, that's the first thing you should be looking at, w/volume as a secondary consideration relative to it. Price constantly cycles between low volatility and high volatility, it trends and consolidates, that's all it ever does. The ranges prepare for the trends and the trends exhaust themselves into ranges. And of course they bleed into each other. Look at price movement and the bar spreads along w/the closes, this will show you what cycle you're in, high volatility or low. Volume can be very ambiguous, so look for 1) points where vol is at extremes for one or just a few bars and/or 2) areas where the overall vol pattern is different relative to the what has gone before, and/or 3) where vol is most clearly at odds or in support of price action.
For instance in the first 2/3 of your chart there is an obvious downtrend. Simple trendlines show us this if we can't see it w/the naked eye. At A there is extreme vol on a relatively very wide spread, which closes mid-point of its range. The vol alone suggests at least possible climatic action considering what has gone before and the close would seem to reinforce this. Then the next 5 bars, while creeping down, are really unable to make any kind of significant progress, w/only the last bar at B closing below the low of A, barely, on a bullish dragonfly doji w/a very long tail, a classic reversal bar on relatively strong vol.
This is followed by a loverly automatic rally to C, then a very bullish pullback to D, classic, a shallow retracement on very narrow spreads on low contracting volume. The second bar following D breaks above this little consolidation on a good spread closing near the high on very strong relative vol. It does not follow-thru, next bar down and price then consolidates sideways for the next 4 bars on narrow dojis and miniscule contracting volume and retracement thus far is nil.
You've chosen to end your chart at what Wyckoff referred to as an apex, possibly still evolving: From C to E price has been mostly consolidating following the automatic rally that follows a selling climax, as vol has been consistently diminishing since A, while bar spreads narrow and price swings contract, all the time giving up very little ground to the downside. I'd wait for some confirmation or refutation of the breakout before taking a position, but would have a bullish bias as of this chart, intermediate, until the next bar tells me something different. Hence why trading is really about placing stops and not necessarily making calls.
H
This is really typical. The guy (Marketsurfer) has nothing to say, but has a pressing need to practice typing. Program buys (and sells for that matter) require counterparties and so "volume" occurs when they transact.
Understanding volume spread analysis is really the key and you can get more on that from the folks who developed Tradeguider. The product isn't worth shit, but the underlying philosophy is correct in principle. Check out some of the comments by Tom Williams as regards VSA.
Good luck
Steve
As regards the chart posted by the thread originator, well you had 3 signals that you ignored.
1. You had a breakout of the range on significant volume. The form of the breakout was a wide range bar compared to the previous bars. That was #1
2. You had a significant ramp up of volume compared to previous volume
3. The way the bar developed signaled continuation. Look at the bar again. As it developed you would have seen the initial impulse move up (a relatively quick move) then a hesitation and retrace back down. As price resumed its move up, it formed the tail that you see on the bottom of that bar (just to the right of the first oval). That tail is your continuation signal and your stop should have been just under it. For the poor misguided folks who don't yet understand the relationship between price and volume, this is the reason why increasing volume DOES signal movement.
Entry on the open of the next bar would require you to hold through another congestion area. This is typical.
Right next to (on the left of) your next oval you have a doji. Look down at the volume preceding that bar. See how volume dropped gradually right before that bar and then spiked again.
that is the resumption of the move. Four bars later you have an exhaustion bar (volume bar) look at how big it is compared with the previous bars. You should have been selling into this exhaustion right there. Momentum players (retail) also come to the party late. They continued to buy for several more bars. You could have been the guy who sold it to them. The key to this is how early in the process you recognize "THE SIGNALS"
Take some time and look at the chart carefully. If you see what I am saying, you will need to re-invent your way of watching charts
I can answer questions if you PM me.
Good luck
Steve
1. You had a breakout of the range on significant volume. The form of the breakout was a wide range bar compared to the previous bars. That was #1
2. You had a significant ramp up of volume compared to previous volume
3. The way the bar developed signaled continuation. Look at the bar again. As it developed you would have seen the initial impulse move up (a relatively quick move) then a hesitation and retrace back down. As price resumed its move up, it formed the tail that you see on the bottom of that bar (just to the right of the first oval). That tail is your continuation signal and your stop should have been just under it. For the poor misguided folks who don't yet understand the relationship between price and volume, this is the reason why increasing volume DOES signal movement.
Entry on the open of the next bar would require you to hold through another congestion area. This is typical.
Right next to (on the left of) your next oval you have a doji. Look down at the volume preceding that bar. See how volume dropped gradually right before that bar and then spiked again.
that is the resumption of the move. Four bars later you have an exhaustion bar (volume bar) look at how big it is compared with the previous bars. You should have been selling into this exhaustion right there. Momentum players (retail) also come to the party late. They continued to buy for several more bars. You could have been the guy who sold it to them. The key to this is how early in the process you recognize "THE SIGNALS"
Take some time and look at the chart carefully. If you see what I am saying, you will need to re-invent your way of watching charts
I can answer questions if you PM me.
Good luck
Steve
The vexed question of price and volume, is capable of an answer other than the current 2 answers. These 2 are first that volume leads & explains price and second that volume does not or does not sufficiently explain price direction.
An alternative to those 2 beliefs is reading price direction from price only (but not excluding prisms of price, namely charts of differing timeframe, tick, volume and/or range bars). Here volume may or may not referenced as a subsidiary consideration.
For aficionados of volume leading price, is price a function of volume or (less thought about) is volume a function of price?
The day can be micro-traded (eg YM) using all the gyrations (upmoves/downmoves) of the session.
An alternative to those 2 beliefs is reading price direction from price only (but not excluding prisms of price, namely charts of differing timeframe, tick, volume and/or range bars). Here volume may or may not referenced as a subsidiary consideration.
For aficionados of volume leading price, is price a function of volume or (less thought about) is volume a function of price?
The day can be micro-traded (eg YM) using all the gyrations (upmoves/downmoves) of the session.
Hi, abxs.
It's a bit difficult to fully understand the price action on this chart without knowing the S/R levels defined by previous periods (off the left side of the chart).
In looking at the bar on which you opened your short position, my eyes see a with-the-trend, long entry as the price retraced back to what had been the top of the 9:30-10:00 consolidation area (around 1254.25). I would simply look to volume for confirmation of the 10:00 breakout. The real body of your entry candle is only 3 ticks (6 ticks with the lower shadow), and that doesn't represent a defining change of sentiment from the slight upward trend that was present since 9:30. The patterns that you're seeing are just the noise of distribution following the 10:00 move (these wouldn't even register as patterns on a 5 or 15 minute chart), and there wouldn't be a likely reason to believe that the market would break below 1254.25. Also, the equity markets often pick their direction for the morning following the noisy 9:30-10:00 period, and the 10:00 move indicated that an upward direction was more likely than a downward one at that point.
It's purely my opinion, but I think a 2-minute chart is much too fast for the ES. If you're trying to scalp micro-countertrend, there are much better markets such as the YM or ER2 (although it's very hard to reasonably control your risk/reward at that timeframe with those products). If you want to trade with the trend then a 15 or 30 minute chart is a better gauge of sentiment and more helpful for determining the S/R levels that the rest of the market participants might care about. I find drawing horizontal S/R lines on my charts to be very helpful in framing the likely boundaries and highlighting breakouts, breakdowns, and consolidations (see attached chart).
Good luck.
Regards,
William
It's a bit difficult to fully understand the price action on this chart without knowing the S/R levels defined by previous periods (off the left side of the chart).
In looking at the bar on which you opened your short position, my eyes see a with-the-trend, long entry as the price retraced back to what had been the top of the 9:30-10:00 consolidation area (around 1254.25). I would simply look to volume for confirmation of the 10:00 breakout. The real body of your entry candle is only 3 ticks (6 ticks with the lower shadow), and that doesn't represent a defining change of sentiment from the slight upward trend that was present since 9:30. The patterns that you're seeing are just the noise of distribution following the 10:00 move (these wouldn't even register as patterns on a 5 or 15 minute chart), and there wouldn't be a likely reason to believe that the market would break below 1254.25. Also, the equity markets often pick their direction for the morning following the noisy 9:30-10:00 period, and the 10:00 move indicated that an upward direction was more likely than a downward one at that point.
It's purely my opinion, but I think a 2-minute chart is much too fast for the ES. If you're trying to scalp micro-countertrend, there are much better markets such as the YM or ER2 (although it's very hard to reasonably control your risk/reward at that timeframe with those products). If you want to trade with the trend then a 15 or 30 minute chart is a better gauge of sentiment and more helpful for determining the S/R levels that the rest of the market participants might care about. I find drawing horizontal S/R lines on my charts to be very helpful in framing the likely boundaries and highlighting breakouts, breakdowns, and consolidations (see attached chart).
Good luck.
Regards,
William
