Why does Volume matter? Isn't non-involvement from institutional buyers itself a signal?

[Sprout]

So far I like to observe volume spikes as confirmations or exhaustions of trends, but I'm starting to wonder what the logic is behind it, given that there is so much money or holdings on the sidelines. If institutions witness significant movement yet don't engage, isn't that as much of a confirming signal if there's low-volume? They essentially are fine or don't feel the need to trade against a low-volume trend.

Yes, the Dry up of volume is as informative as First Rising Volume, Peaking Volume and Exhaustion Volume. Price and volume are inter-related like light being both wave and particle There are much finer distinctions than the very broad and general ones above. Yet the broad and general ones repeat like a sequence for every definable trend. Three moves of price are correlated to four moves of volume.

Filtering your T&S screens will support discerning when and what levels various trader types choose to participate. In ES futures, Traders whom deal in 1’s, 10’s, 100’s or 1000’s in lot sizes participate at different frequencies.

During RTH, it’s monitoring increasing, decreasing, surging, and stalling pace that supports insights into volume leading price.

 

[kj5159]

Yes, the Dry up of volume is as informative as First Rising Volume, Peaking Volume and Exhaustion Volume. Price and volume are inter-related like light being both wave and particle There are much finer distinctions than the very broad and general ones above. Yet the broad and general ones repeat like a sequence for every definable trend. Three moves of price are correlated to four moves of volume.

Filtering your T&S screens will support discerning when and what levels various trader types choose to participate. In ES futures, Traders whom deal in 1’s, 10’s, 100’s or 1000’s in lot sizes participate at different frequencies.

During RTH, it’s monitoring increasing, decreasing, surging, and stalling pace that supports insights into volume leading price.

I'm not trading live yet, in the researching phase so take this for what it's worth which is probably less than zero.

I look at volume from the perspective of market makers, who want high volume because for them volume = orders = $$$. If there is high volume at a given price level it is unlikely that a market maker would be inclined to move price from there, not guaranteed but just likely/unlikely mind you, because they're filling orders. Thus conversely if there is a low volume period there is lower activity at that price level, thus MMs are more inclined to move price either up or down to hit more orders.

If this is dumb please tear me apart if you're more experienced, I'm trying to figure this thing out at this stage.

 

[Sprout]

Or possibly creating/replicating a position in the options market ? It is because of these inconsistancies/variables that I loose my confidence in volume as a leading indicator as many adhere to.

@Sprout ..maybe you can comment. I guess my problem with volume is how do you establish the true base line ? how do deep ITM options (as a stock substitute) factor in ? Or institutional indifference (as mentioned above ) ?
Thanks

There are various levels of volume to consider depending on one’s timeframe and the distinctions one has on identifying and monitoring the progression of trend.

As for a baseline, one end is Dryup, the other is Peaking. There’s a distribution that repeats everyday based on the catenary. There is a pattern that repeats (regardless if it’s long or short) for every trend. Three price moves to four volume moves. What makes it difficult to discern from just a casual inquiry is that the pattern can span multiple timeframes by accelerating or de accelerating.

As for options, that’s a domain that’s beyond my knowledge base.

For a painter, one trains the eye to master variations in color, hue, saturation etc. same is training is true for volume.

For example in the prior post of Exhaustion volume. That type of volume has 35 distinct and unique forms that the market cycles through like clockwork.

How does one communicate the relevance of a clock if there’s no need for a train?

There are a variety of modes of transportation from A to B. Each with it’s own degree of sophistication, training and practice required to make functional, efficient, practical and safe. Traveling by walking, cycling, trains, buses, autos, ships and airplanes each offers a benefit the others do not.

 

[Scataphagos]

Contrary to what most people will tell you, volume isn’t a very useful indicator.

"...Conventional trading “wisdom” for volume indicators
Volume measures how many shares were traded in a specified period of time (e.g. 1 day, 1 hour, 30 minutes). It is frequently used as a confirmation indicator in conjunction with other technical indicators.

Conventional trading wisdom states that volume is used to “confirm” trends.

1. A trend that’s confirmed by “rising volume” is a real trend that will continue.
2. A trend that’s NOT confirmed by “rising volume” (i.e. volume is flat or falling) is a fake trend that will end soon.

The “logic” behind this is simple.

1. More and more traders/investors should jump on the bandwagon if a trend is real and will continue.
2. Conversely, fewer and fewer traders will trade on the side of the current trend if they think that the trend will end. A trend + falling volume means that traders are expecting a trend reversal.

For example:

1. A market that rises on rising volume = bullish.
2. A market that rises on falling volume = bearish.
3. A market that falls on rising volume = bearish.
4. A market that falls on falling volume = bullish.

Our backtests have demonstrated that the above assumptions are not true. Volume cannot be used to consistently and accurately confirm or disprove trends.

Do not use volume for trading
Volume – regardless of whether it’s rising or falling – is neither bullish nor bearish for the market. It’s just a fact, like stating “the market went up/down today”. It has no predictive value.

https://bullmarkets.co/dont-use-volume-for-trading/

____________________________________________________

As I have stated for years... among the slings and arrows.

IOW... Not only is consideration of volume as it relates to price irrelevant.... it is often misleading. So.... traders should do their trading a favor and FORGET VOLUME ALTOGETHER*!

*Does not apply if you use volume as a surrogate for time.... as in "volume bars" or "constant volume bars"... that's entirely different.

 

[Xela]

Using volume matters hugely to me, because it makes an enormously statistically significant difference to my results.

I proved it, with regard to my own trading, with a 6-month-long, side-by-side, direct comparison of "volume-based" and "non-volume-based" trading, over many hundreds of trades, using the same methods on the same instruments at the same time, to find out for myself whether it would be a useful addition to my trading (as so many professionals familiar with how I traded had been patiently advising me for so long).

I was a skepchick and believed that volume wouldn't help me much; I was stubborn and resistant to change.

I was wrong; they were right.

I ended up wishing I'd started using volume around 4-5 years earlier than I actually did.

This is, of course, a very superficial, abbreviated summary - the statistical analysis involved was more complicated and intricate than I'm making it sound with my comment above (and I suspect that that's one of the aspects that dissuades some people from even looking at this) ... but for me, the outcome of the "experiment" was overwhelmingly conclusive: overall, in simple terms I make around 25% more profit, each month, on the same risk basis, by using volume.

I accept, obviously, that some others' experience is sometimes apparently different from my own (and I'm used to that), but from my own perspective it's very much "case closed".

 

[Error Correction Funder]

Generally, low volume at tops, high volume at bottoms.

 

[Scataphagos]

Using volume matters hugely to me, because it makes an enormously statistically significant difference to my results.

I proved it, with regard to my own trading, with a 6-month-long, side-by-side, direct comparison of "volume-based" and "non-volume-based" trading, over many hundreds of trades, using the same methods on the same instruments at the same time, to find out for myself whether it would be a useful addition to my trading (as so many professionals familiar with how I traded had been patiently advising me for so long).

I was a skepchick and believed that volume wouldn't help me much; I was stubborn and resistant to change.

I was wrong; they were right.

I ended up wishing I'd started using volume around 4-5 years earlier than I actually did.

This is, of course, a very superficial, abbreviated summary - the statistical analysis involved was more complicated and intricate than I'm making it sound with my comment above (and I suspect that that's one of the aspects that dissuades some people from even looking at this) ... but for me, the outcome of the "experiment" was overwhelmingly conclusive: overall, in simple terms I make around 25% more profit, each month, on the same risk basis, by using volume.

I accept, obviously, that some others' experience is sometimes apparently different from my own (and I'm used to that), but from my own perspective it's very much "case closed".

*Does not apply if you use volume as a surrogate for time.... as in "volume bars" or "constant volume bars"... that's entirely different.

I included the above primarily for you.

Not to pick nits.... but I'm skeptical.

a. You plot "#of contracts" to make a bar along the time axis... which shows the "hi and low" for that period. As to "horizontal support/resistance", should be exactly the same as using time bars.

b. There may be a difference when viewing trendline S/R... as your "number of bars over a period" may be different from using time bars and therefore alter the slope. I give you that.... however, "trendline plays" are comparatively small in number.

You say, "your comparo tests". Unfortunately doesn't allow for vagaries in comparison methodoligies. IOW... "what" you compared may not have been as effective as you "might have compared" thus leading to erroneous conclusion. The "25% diffential" you claim seems exaggerated and illogical.

Man of science myself, intuitively using time bars and volume bars should yield almost the exact same results.... quite frankly, I'd have to see the difference you claim in real time to believe it.

I accept I could be wrong... after all, I was once before.

 

[tiddlywinks]

Using volume matters hugely

I proved it, with regard to my own trading

wishing I'd started using volume around 4-5 years earlier

overwhelmingly conclusive

it's very much "case closed"

Hi there!

 

[Xela]

Not to pick nits.... but I'm skeptical.

Very healthy approach in general, I'm sure ... I always have been, too.

Man of science myself, intuitively using time bars and volume bars should yield almost the exact same results....

I hear you: this is what I used to believe, too - "intuitively", exactly as you say. I'm not trying to change anyone's beliefs, here: simply reporting on my own discoveries with regard to my own trading.

 

[Scataphagos]

Hi there!

Sounds like you're a "volume devotee". Plenty of info which suggest you should not be.