Volume Analysis
- Thread starter melteye
- Start date
one of the things i tried was putting an EMA on volume and calc most recent volume's distance to that EMA. i would not see this as in indicator, but rather a tool to get to relative values. then i tried to figure out if extraordinary volume figures can be combined with other information to forecast today's gain as defined by the distance from close to open.
among the things i did was negative bars after a rally and vice versa, accompanied with volume dropping or increasing. you already see the kind of thinking.
now i am far from saying that volume analysis does not pay off. what i am saying is that i tried it and ordinary daily volume on sp futures does not seem to be of great help. so far ...
the "jack" thing: why don't we all try to be more disciplined and avoid tose people we know we cannot communicate with?
peace
I'm afraid I don't see where "common know-how" enters into this. In any case, you're not analyzing volume but a moving average of volume. Therefore, to say you've "tried it" isn't quite accurate. There seems to be a general misunderstanding of what volume analysis is, so I refer anyone interested, again, to Graifer's book, or Wyckoff's work.
As for avoiding Jack, that's why I prefer not to pursue the subject on a message board.
As for avoiding Jack, that's why I prefer not to pursue the subject on a message board.
Lucky you melteye,
Grob, alias Jack, dropped by. You are going to find out everything you need to know!
nononsense
I am wondering if people have observed the relationship between the upvolume and down volume of a futures contract or a stock over a cycle that starts and ends at the same price.
Letâs say we are observing the e-mini on a 3-minute chart and plotting the volume on upticks and volume on downticks. Say the emini starts at 1100 in the morning (price level A) and over the next 90 minutes rises erratically to reach 1105 (level B). It is easy to figure out the cumulative amount of upvolume (300000 contracts) and downvolume (275000 contracts ) over this period of time . The upvolume is the volume on upticks and represents buyers who were ready to buy at the Ask. Likewise the volume on downticks represent sellers who were ready to sell at the bid price. As expected in an upward move the upvolume representing buying pressure will exceed the downvolume that is indicative of sellers.
If 1105 happens to be a major resistance area or a pivot point, the emini will experience resistance to go up any further. This is easy to see when downvolume in the 3-minute interval now starts overpowering the upvolume. At some point, the net amount of downvolume causes the emini to start its downward move back towards 1100 (level A) where it finds support again. Again we can look at the cumulative amount of volume at upticks (260000) and downticks (290000) during this B to A downswing.
The first question is: If the net upvolume on the A to B move is +25000 contracts, and the corresponding net downvolume when the emini retraces its path from price level B back to A is -30000 -- will the emini stabilize at 1100 and start another move up towards price level B or will it break support at A?
My observations on this have been inconclusive. One could argue that higher volume on the downswing means there were more sellers than buyers and the next likely move is down. On the other hand we could also say that it took a lot more bearsish volume to bring the emini back to its starting point than the bulls needed to push it up. So perhaps the bears are starting to exhaust their energy and the bulls will have another chance to test the 1105 level.
Next, letâs say the emini finds support at 1100 and makes another run to test the 1105 level. It will again encounter resistance at 1105. This time the net upvolume is +35000 contracts. This number is higher than the corresponding volume on the upmove (25000) and the net contracts (-30000) that were sold on the way down. Will it now break through the level or stall again? Again I have it seen it both ways which just leaves me thoroughly confused.
Ash
Letâs say we are observing the e-mini on a 3-minute chart and plotting the volume on upticks and volume on downticks. Say the emini starts at 1100 in the morning (price level A) and over the next 90 minutes rises erratically to reach 1105 (level B). It is easy to figure out the cumulative amount of upvolume (300000 contracts) and downvolume (275000 contracts ) over this period of time . The upvolume is the volume on upticks and represents buyers who were ready to buy at the Ask. Likewise the volume on downticks represent sellers who were ready to sell at the bid price. As expected in an upward move the upvolume representing buying pressure will exceed the downvolume that is indicative of sellers.
If 1105 happens to be a major resistance area or a pivot point, the emini will experience resistance to go up any further. This is easy to see when downvolume in the 3-minute interval now starts overpowering the upvolume. At some point, the net amount of downvolume causes the emini to start its downward move back towards 1100 (level A) where it finds support again. Again we can look at the cumulative amount of volume at upticks (260000) and downticks (290000) during this B to A downswing.
The first question is: If the net upvolume on the A to B move is +25000 contracts, and the corresponding net downvolume when the emini retraces its path from price level B back to A is -30000 -- will the emini stabilize at 1100 and start another move up towards price level B or will it break support at A?
My observations on this have been inconclusive. One could argue that higher volume on the downswing means there were more sellers than buyers and the next likely move is down. On the other hand we could also say that it took a lot more bearsish volume to bring the emini back to its starting point than the bulls needed to push it up. So perhaps the bears are starting to exhaust their energy and the bulls will have another chance to test the 1105 level.
Next, letâs say the emini finds support at 1100 and makes another run to test the 1105 level. It will again encounter resistance at 1105. This time the net upvolume is +35000 contracts. This number is higher than the corresponding volume on the upmove (25000) and the net contracts (-30000) that were sold on the way down. Will it now break through the level or stall again? Again I have it seen it both ways which just leaves me thoroughly confused.
Ash
Since nobody's bothering to answer this, I'll get you started.
There are never more sellers than buyers. Nor more buyers than sellers. Every transaction requires both. If price is falling, the buyers are there. Otherwise, there would be no transaction. However, they are not willing to pay what the sellers are asking. Therefore, the price must be lowered.
As to the volume, what else would you expect? Stronger up volume to R, then stronger down volume to S. If the volumes were more equivalent, the price would be more likely to drift sideways in a coil. What you're really wondering is whether or not you can predict what's going to happen once you get to S or R, and the answer is no. The best you can do is provide yourself with reversal, breakout, and retracement strategies, then employ whatever's appropriate for whatever opportunity the market provides. You may at some point be able to assign probabilities to a breakout vs a reversal, but you needn't concern yourself with that in order to trade.
There are never more sellers than buyers. Nor more buyers than sellers. Every transaction requires both. If price is falling, the buyers are there. Otherwise, there would be no transaction. However, they are not willing to pay what the sellers are asking. Therefore, the price must be lowered.
As to the volume, what else would you expect? Stronger up volume to R, then stronger down volume to S. If the volumes were more equivalent, the price would be more likely to drift sideways in a coil. What you're really wondering is whether or not you can predict what's going to happen once you get to S or R, and the answer is no. The best you can do is provide yourself with reversal, breakout, and retracement strategies, then employ whatever's appropriate for whatever opportunity the market provides. You may at some point be able to assign probabilities to a breakout vs a reversal, but you needn't concern yourself with that in order to trade.
In another thread, Scientist mentioned something that you may find useful in your studies, here is the gyst of it..
Remember, the market is always in search of volume/liquidity. It will move to where volume is, if the market is at 1005 and there is a lot of buying pressure at 1000, the market will move to 1000, it will go to where the volume is. Therefore, if you see increasing volume, this can very well mean that price is going in the direction towards even more increasing volume. Don't know if I'm being clear, but basically, high volume begets even higher volume (a more correct price). This is where the idea of rising volume confirms trend, falling volume identifies exhaustion comes from; while volume is increasing, we are still approaching the 'correct' market price. As volume begins to decrease, it means that we are moving away from/passed by the 'correct' market price. Tried to say that as best I could, sorry if it wasn't very clear
Edit: One thing you may want to look at is a market profile graph, it will show you how much time price spent at different prices throughout the day. Where price spent the most time is where it traded the most/had the most volume. You'll see that volume drops off as you travel away from this price and eventually causes price to revert to 'correct'. This is not to say that the correct price cannot shift, because it is always shifting. Shifting occurs based on trader's perceptions of value at various prices in relation to the current market price
Remember, the market is always in search of volume/liquidity. It will move to where volume is, if the market is at 1005 and there is a lot of buying pressure at 1000, the market will move to 1000, it will go to where the volume is. Therefore, if you see increasing volume, this can very well mean that price is going in the direction towards even more increasing volume. Don't know if I'm being clear, but basically, high volume begets even higher volume (a more correct price). This is where the idea of rising volume confirms trend, falling volume identifies exhaustion comes from; while volume is increasing, we are still approaching the 'correct' market price. As volume begins to decrease, it means that we are moving away from/passed by the 'correct' market price. Tried to say that as best I could, sorry if it wasn't very clear
Edit: One thing you may want to look at is a market profile graph, it will show you how much time price spent at different prices throughout the day. Where price spent the most time is where it traded the most/had the most volume. You'll see that volume drops off as you travel away from this price and eventually causes price to revert to 'correct'. This is not to say that the correct price cannot shift, because it is always shifting. Shifting occurs based on trader's perceptions of value at various prices in relation to the current market price