Volume--- how to use it and WHY

[black diamond]

I can't believe I clicked through 40 some pages of this thread.

I also can't believe there is so much philosophical and psuedo religous argument out there about volume. Volume is measurable. You should be able to test whether it does or doesn't do what you say it does.

So here's my contribution. The study below shows that the probability that a reversal follows a large weekly return is related to volume, at least in that specific sample. You can just look at figure 1 to get the gist of it. There's more like this is the public domain, this is just the one I remembered first. I also know this basic idea seems to hold for some shorter timeframes and more recent history.

I don't have any idea if your favorite head-in-ass pattern only works on rising volume, but I think there is a pretty strong case that volume matters sometimes. It may be more interesting to talk about when it is important and why, which is what I thought this thread was going to be about.

 

[aceholic]

Quote from black diamond:

I think there is a pretty strong case that volume matters sometimes. It may be more interesting to talk about when it is important and why, which is what I thought this thread was going to be about.

Thanks, I thought so too and it's nice to see someone actually bringing something to this discussion.

The thread has served one purpose however, and that has been to demonstrate how many varied and different viewpoints there are on volume analysis. It shows how inexact a science it is and that it is better to find other more "concrete" pieces of information that lend themselves better to successful trading. --Ishmael

The fact that there's varied viewpoints has no relation to what's correct. As I said before, there was once a huge debate over whether price action was more than just random. That debate is mostly over now.

I think you'd get a similar amount of disagreement if you asked which is better: mean-reverting strategies versus trend-following strategies. Some people will adamantly say that one or the other is the "correct" way and the other is garbage. Yet, I know different people who have made money over a large period of time following either general strategy. I can't honestly tell you which is "better".

I also can't definitively tell you that volume matters, but it sure seems like there are valuable uses for it. It could definitely be a part of successful systems... perhaps even the most successful systems. And if you close off that possibility, you will limit your trading and your results.

 

[Xspurt]

Quote from aceholic:


I also can't definitively tell you that volume matters, but it sure seems like there are valuable uses for it. It could definitely be a part of successful systems... perhaps even the most successful systems. And if you close off that possibility, you will limit your trading and your results.

This kind of attitude can lead to big breakthroughs

 

[Dackster]

Look dope heads, contracts are bought at lower levels and sold on at higher levels, this is volume in play. What people on here are going on about is beyond me. Freaky LULZ!!



Dackster.

 

[bighog]

A simple paragraph says it all.

Price movement is the reason for the season. Price, its naked self is all that matters when you look at the days bottom line. Why price moved, how fast or slow, up or down, etc, etc is meaningless. Simpletons try to intellectualize the game by trying to reinvent the wheel and impress themselves and prospective girl friends. Volume is for those that can not and will not allow themselves to comprehend how KISS works in a game of chance.

last post about volume.............. just keep funding those accounts.

 

[Lucrum]

Quote from black diamond:


...I also can't believe there is so much philosophical and psuedo religous argument out there about volume...

It's the old "my way is the only way" mentality.

 

[Thunderdog]

Quote from black diamond:

...but I think there is a pretty strong case that volume matters sometimes...

But that's the point, isn't it? Sometimes price continues on higher volume and sometimes it reverses. Sometimes price continues on relatively low volume and sometimes it reverses. Have you been able to distinguish in advance which is which? Personally, I have not been able to do so with any practicable reliability. So the question I had to ask myself was, what is the incremental value of this additional variable?

As an aside, let us exclude relatively large spikes in volume from consideration, since the writing is on the price wall as well when such outsized volume spikes occur, with outsized price bar ranges. So I don't think there is incremental informational value in such occurences as it relates to volume. As for notable increases in volume not accompanied by outsized price bar ranges, only the subsequent price action will tell you what's what, since I have found that it can go either way in my own experience with no practicable a priori bias that I, personally, can distinguish. So where, then, is the value in volume? Perhaps your perception is more nuanced in these matters.

 

[ProfLogic]

Quote from Thunderdog:

But that's the point, isn't it? Sometimes price continues on higher volume and sometimes it reverses. Sometimes price continues on relatively low volume and sometimes it reverses. Have you been able to distinguish in advance which is which? Personally, I have not been able to do so with any practicable reliability. So the question I had to ask myself was, what is the incremental value of this additional variable?

As an aside, let us exclude really large spikes in volume from consideration, since the writing is on the price wall as well when such outsized volume spikes occur with outsized price bar ranges. So there is no incremental informational value in volume there.

The only way you can be comfortable is to look at all of the possibilities and make you own choice as to which suits your style and increment of chart viewing.

Break the situation down to its least possible denominators and put it back together looking for the variables you can eliminate or replace with absolutes.

 

[Thunderdog]

Quote from ProfLogic:

The only way you can be comfortable is to look at all of the possibilities and make you own choice as to which suits your style and increment of chart viewing.

Break the situation down to its least possible denominators and put it back together looking for the variables you can eliminate or replace with absolutes.

And that is precisely what I have done. I have essentially done to volume what you have done to time. Nevertheless, they both continue to exist, eh?

 

[ProfLogic]

Quote from Thunderdog:

And that is precisely what I have done. I have essentially done to volume what you have done to time. Nevertheless, they both continue to exist, eh?

Yes they do.

Just like ice cream.
Some like chocolate, some strawberry, some vanilla and some break into Cold Stone with medical marijuana.