Volume analysis is to be discarded as it is "too much information"

[black diamond]

Thanks for the heads up, I lose track of who's who. Actually sometimes I suspect there is a computer generating a lot of these posts and there are only a few real people here, but I have no proof.

But some of my best friends are academics, OP does not sound like an academic if this is true!

Quote from traderNik:

It might be easier to understand the OP's statements in this and other threads of you remember the fact that he is almost certainly an academic, and someone who doesn't actually trade. He's into the theory of trading. As with most academics, the real world doesn't intrude into their world of theory.

Please recall that this same member has said that

1. Daytrading is pointless

2. You should pick one side (long or short) and trade from that side exclusively

3. Unrealized profit in a position is 'house money'.

4. Scaling out and scaling in represent 'inferior behaviour'.

This latest thread should be understood with these comments in mind.

 

[black diamond]

I'll do it, sort of. Not actual trades but I'll strip out some of the secret sauce and timeframes from my model and post my backtest results with and without the volume criteria. Not for a few days though.

Quote from Thunderdog:

The arguments supporting the use of volume all sound compelling and logical. And as I had noted here and elsewhere, I bought into the premise wholeheartedly in the past. However, I would ask that proponents of the use of volume consider putting their views to the test. Presumably, you guys more or less get your cues from price but seek confirmation from volume.

Here is my request for those of you who trade using an objective, systematic method. As you trade using price and volume (I won't refer to the use of indicators of one form or another because I don't use them and because they are beyond the scope of this thread), keep a parallel journal of hypothetical trades for the same period based solely on the price portion of your method, completely ignoring the volume component. Then, after a length of time and a sufficient sample of trades, both real using volume and hypothetical trades disregarding volume, compare the two. If the reliability and/or profitability is meaningfully higher with the use of voume, then it would certainly appear that you are deriving benefit from the information provided by volume. If not, however, then maybe it is time for you to revisit your assumptions.

In my own case, I had to revisit my assumptions. The argument can be made that I did not regard volume correctly, and that is certainly a possibility. But I don't think so. I considered volume in a number of different ways and configurations and, on balance, it added no meaningful value to me.

 

[acrapolis]

Quote from ProfLogic:

It's an interesting distraction from paper trading.

edited for accuracy

 

[Equalizer]

Quote from acrapolis:

edited for accuracy

LOL

 

[Xspurt]

I posted the following on B1S1 ES Journal and I'm posting it here for those following this thread. As B1S1 is swing trading so it's a daily chart and that's the last signal provided.

=============================================





I was asked to post an example of how volume can AT TIMES provide an edge over trading without volume.

(By "at times" I mean you must learn when a quality signal is presenting itself. Like all trading you learn to distinguish the good from the weak signals)

As B1S2 is swing trading I have taken an example of the daily chart for this bottom. There are a number of approaches that gave an expectation of a major reversal and a bull move but I am going to look specifically at volume to see how it reads.

The move that is enclosed within the "bubble" moves down from a minor reversal to the red bar low with the "X".

The question is, could we anticipate a STRONG reversal and buy the double bottom low? Or buy the break above the red 'X' bar expecting a run? Or is the market more likely to make new lows?

Moving within the "bubble" to the low the last 4 green bars all have increasing buying interest while the the red bars all have decreasing range but increasing volume.

You would expect increasing volume to increase the range of some of the bars under normal circumstances, but at the low the red with the highest volume is the smallest range of the last 3 red bars, it has big volume and all the red bars showed progressive range contraction with increasing volume.

However the smallest green has the biggest volume of the last 4 green bars and buying has consistently increased.

So we have a pressure point where the selling is increasing and the buying is increasing and range decreasing. This tends to be where Smart Money sell out to Dumb Money and buys at the lowest cost. It's called a Change of Hands.

The red "X" bar is the test. It didn't take out the low and selling is lower that the prior 4 selling days. If sellers were interested they would be likely to move the market down.

Volume is warning the whole emotion of the market is changing and it looked like buyers were going to run the market. It's a heads up on strong move before PA has signaled allowing aggressive trading at the lows with a tight stop.

Without volume of course you could still buy the lows, but without the same confidence or expectation of what probably lay ahead.

If you work back through all of these bars on this chart you will see the signals are consistent with this approach just as the next will be. There is nothing rigged - it's a classic signal.

Volume can AT TIMES add to the picture and provides quality information but you can trade without it and it takes time to learn all the moves.

There are absolutely times when volume does not add anything to the decision making process.

 

[Thunderdog]

Quote from black diamond:

I'll do it, sort of. Not actual trades but I'll strip out some of the secret sauce and timeframes from my model and post my backtest results with and without the volume criteria. Not for a few days though.

I look forward to your report.

 

[MandelbrotSet]

Quote from Xspurt:

I posted the following on B1S1 ES Journal and I'm posting it here for those following this thread. As B1S1 is swing trading so it's a daily chart and that's the last signal provided.

=============================================

I was asked to post an example of how volume can AT TIMES provide an edge over trading without volume.

...

Hey Xspurt, I meant what I said:

"real life, real-time example"

You posted a chart on the third day of a huge bull run. It's interesting, anecdotal information (as it wasn't even given in real-time as live commentary), but that is about it.

Your example definitely qualifies in the "too much information" category.

 

[MandelbrotSet]

Quote from acrapolis:

edited for accuracy

+1

 

[ProfLogic]

Quote from MandelbrotSet:

+1

Always trying to start something, aren't you.

 

[MandelbrotSet]

Here's what someone else said about volume in regards to the current up move.

Quote from dealmaker:

Volume data is not supporting anything. Volume is so low any conclusion would inevitably be based on personal convictions not reality.

Link

I mean, come on guys ... "is it is, or is it isn't?" :eek: