Using volume to predict direction

[satchel]

Quote from galvinlee888:

How many time this has been quoted in the text book ?

You got me. But there ain't nothin wrong with start & stay simple, we make things complex and get in the way.

The most robust strategies in the markets are the simplest strategies. Ed Seykota!

Quote from lescor: I'm ALL about simple. To me, the logic and reasoning to explain why you're in a trade should only take a couple sentences.

 

[1a2b3cppp]

Quote from lcranston:

Not quite. If price hits resistance the first time on strong volume, both sellers and buyers are ready to roll. If buyers can't push through, price will at least stall and likely reverse. This is called a "V reversal". If buyers try again but they can't rally the troops, sellers will have to make much less effort to turn them back, hence less trading activity, i.e., lower volume. This is the famed "double top".

In any case, it's not the volume, it's the behavior of the traders involved. This is one reason why price can so often "break out" on unremarkable volume: sellers don't care enough to impede the effort, hence the low level of trading activity, i.e., the low volume.

So you are saying price hitting resistance with high volume on the first hit of support and low volume on the second, it is likely to be a double top where price goes back down (as opposed to not being a double top at all)?

So like this:

 

[1a2b3cppp]

As opposed to this?

 

[lcranston]

Quote from satchel:

Try this: go for higher probability of break out setups.

-> decreasing volume
-> volatility dried up

Price is consolidating, all is quiet. Clear where to put stop and target.
If you believe the statistics (Edwards and Magee) then symmetrical triangles, 75% of the time will break in the direction of the major trend.

Try the decreasing volume

This may have been true in the 40s, but it's been my experience that there will first be a fakeout in the wrong direction before price makes a U-turn and heads in the expected direction. This rattles people who aren't anticipating it.

 

[1a2b3cppp]

Quote from danielc1:

cumulative delta volume is an indicator I find usefull for directional trading. Sometimes price move with it and sometimes price move not with it. In either way, it is telling a lot about the direction price is going. I can see with this indicator that when heavy selling is going on, but price is not budging too the downside, we get a voilent move to the upside and vice versa. The key is relationship between volume and price and not going blindly like if the volume does do this, it is a bullisch move...

Cool, yes, thank you for mentioning that. I found that study in my charting program but I had no idea what I was looking at.

I have three different cumulative delta studies:

Cumulative Delta Bars - Ticks

Cumulative Delta Bars - Up/Down Tick Volume

Cumulative Delta Bars - Volume

I've attached a chart with all three. Let's discuss how these can influence our trading decisions.

 

[lcranston]

Quote from 1a2b3cppp:

As opposed to this?

I hesitate to say yes since you seem to be asking something else. Given that you've been doing this for so many years, this can't be anything new to you.

Take a look at the NQ reaction to the NFP Friday morning. Pretty good volume as price hits the first support level, then a little less when it bounces down to the next, then BIG volume when it hits the third support level (buyers rushing in to a greater extent than they did the first two tries). Then a reversal, then a test on lower volume (sellers pretty much done), then another reversal, this time with legs (note that this last also breaks the trendline that begins with the first trades off 2765).

No indicator is necessary, though the trader is always free to use one if he needs to. Whether or not it provides him with any additional and useful information that he doesn't already have is another matter.

 

[RedTankEra]

Quote from 1a2b3cppp:

Could you be any more vague?

Yes by starting to ignore you, I could.

 

[1a2b3cppp]

Quote from lcranston:

I hesitate to say yes since you seem to be asking something else. Given that you've been doing this for so many years, this can't be anything new to you.

My current style of trading has nothing to do with volume, though, so this is kinda new to me.

Take a look at the NQ reaction to the NFP Friday morning. Pretty good volume as price hits the first support level, then a little less when it bounces down to the next, then BIG volume when it hits the third support level (buyers rushing in to a greater extent than they did the first two tries). Then a reversal, then a test on lower volume (sellers pretty much done), then another reversal, this time with legs (note that this last also breaks the trendline that begins with the first trades off 2765).

Would you mind posting a chart of that?

 

[BlueTurtle]

This is GREAT...

So every time you try to call the top...>BUY

every time call the bottom with the star....SELL

And if you see an increase in volume, you know it means more volume....and that's about it. one day 1,000,000....next day 900,000....next day 10,000,000,000.....next day 700,000....

people like to say....OK, volume is here so they will DEFEND this level......maybe, maybe not...

you can find tons of examples where they assumed what the volume meant...and was wrong...

so I just get in BEFORE the big volume......d'uh

 

[PACMAN1]

Quote from lcranston:

I hesitate to say yes since you seem to be asking something else. Given that you've been doing this for so many years, this can't be anything new to you.

Take a look at the NQ reaction to the NFP Friday morning. Pretty good volume as price hits the first support level, then a little less when it bounces down to the next, then BIG volume when it hits the third support level (buyers rushing in to a greater extent than they did the first two tries). Then a reversal, then a test on lower volume (sellers pretty much done), then another reversal, this time with legs (note that this last also breaks the trendline that begins with the first trades off 2765).

No indicator is necessary, though the trader is always free to use one if he needs to. Whether or not it provides him with any additional and useful information that he doesn't already have is another matter.

Excellent reading of the market and the relationship of price and volume.