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Trading the 6E with the Trade Size Analyzer for NT

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London, England
Trading Experience: Intermediate
Platform: Ninja
Broker/Data: Mirus Futures/Zen-Fire
Favorite Futures: EUR
Trafford's Avatar
Posts: 337 since Sep 2010
Thanks: 379 given, 229 received

Aragorn View Post
Several weeks ago I asked the question what people use as a trigger (see While I appreciate the varied responses I must admit I was somewhat surprised and somewhat disappointed. And so I took it upon myself to answer my own inquiry and wanted to share what I had in mind. I assume this initial post will be somewhat lengthy so I apologize in advance but for the sake of clarity I think it would be beneficial to first assure that we are on the same page.

I have always considered volume to be a critical component. With the advances of gomi and Zondor and the ability to utilize and store persistent volume at the bid/ask (I use NT7), a whole new realm of volume trading is now available.

Whether naive or intuitive I began with a simple assumption, if the market is going to change direction, either on a pullback or for a market reversal, something must change in the way that buyers and sellers are entering the market. If the market is to rally higher (as from a pullback), there must, at some point, be a change in the way that buyers are entering the market and the frequency by which they are doing so. The same would have to hold true for sellers who want to drive the market lower. Something would have to change within the order flow.

Often we speak of one side or the other being more "aggressive" in terms of Buyers lifting the offer or Sellers hitting the bid. gomi's volume ladder certainly provides evidence when this occurs. My difficulty in the ladder, however, is that it only tells me what has happened and not the extent to which I can gauge that it will continue. I can see for example Buyers lifting the offer and Sellers hitting the bid but have little confidence in the duration that they will continue to. My point is not to predict or to suggest that it is possible to know what someone sitting on the sidelines is going to do in the next minute or the next 5 minutes- that would be impossible. But my point is to suggest that the ladder only suggests what has happened but doesn't give any indication of what is likely to happen. For that, we need Zondor's contribution building off of gomi's work.

I think that Zondor's Trade Size Analyzer is a phenomenal contribution. By taking gomi's ability to capture and store trading at the bid and the ask and by adding the ability to quantify those orders according to size, a whole new level of possibilities emerge. Before I go any further I need to make something perfectly clear. Volume, as I use it, is not a stand alone tool. It is a single voice in a quartet. Volume, without a preexisting ability to identify potential Support and Resistance levels is worthless. Volume, as I use it, can confirm a level/area is going to hold. A reliable methodology for identifying potential Support and Resistance levels is required. A trader could get highly frustrated using volume alone. (I'll address S/R in a later post.)

When trading volume it seems to me that there are two possible scenarios: First, one side loses strength, interest, momentum or call it what you will. Simply put, they run out of buyers or sellers for whatever the case may be. This makes it much easier to change direction.

The second scenario is that the conviction of the opposing side has a greater conviction to over come whatever short or long term conviction of the current direction. That is, there is no loss of interest, and it is brute force by which a direction change is accomplished.

Volume size becomes the key.

In the first scenario, this loss of interest would be manifest by a significant drop in overall volume (one side runs out of buyers/sellers thereby reducing the overall volume). It would also be seen as an increase in volume sufficient to change direction.

There would have to be a halt or a stoppage in the current direction followed by an increased interest in the opposing direction. What does this mean, or more to the point, what would this look like?

First, it would be a significantly smaller volume bar and Second, there would be a significant increase on that bar of one side over the other to push it in the opposite direction. For example, if the market were trending up and the market pulled back on short term selling to resume the uptrend, according to the first scenario, the volume bar would be small and would show an increase in buyers with a decrease in sellers. The opposite would be the case in a down trend. That is, the volume bar would still be small and would show an increse in sellers with a decrease in buyers. This is the confirming Volume bar.

The second scenario is more difficult. As there is not a decrease in either side, the volume bar would be quite large. Further, depending on the order flow within the bar, volume could be greater on the sell side than on the buy side and yet have the bar close higher on increased buying. This means that buyers were lifting the offer inter-bar and the buying volume is masked by an increased attempt of sellers hitting the bid. Eventually one side will have to emerge victorious or the market would never move.

What does this mean, or more to the point, what would this look like?

First, it would be a large volume bar and Second, there may not be any increase at all on one side over the other. Using the same uptrend scenario and pulled back on short term selling, according to the second scenario the market could trade higher on what appears to be increased selling. Eventually, of course, buyers will be revealed by both price and volume but it could be at a less than ideal location.

I have not found any way to trade the second scenario. Unfortunately, it occurs more often than I care to admit.
I pass on the trade as I am not going to chase it.

Choosing the right timeframe would be a critical consideration. If the time frame is too big then no advantage is gained as both sides are muddled in the mix. If the timeframe is too small then there is a tendency to get a lot of false reads.

Why I don't use Range charts. I like Range charts. The idea of bars that are purely driven by price is very appealing to me. Very early in my trading career I saw their value and began utilizing them. However, when it came to combining them with volume I ran into a snag. As Range bars are not dependent on and are unrelated to time, time could become my enemy. I found that often a Range bar could spend quite a bit of time trading within that Range bar. All the while it was trading within the bar, volume was building up on that bar skewing and distorting what was going on and who, if anyone, was gaining an advantage.

I trade the 6E and there are times when trading slows. It doesn't stop but it does slow. It's at these times that volume on Range charts was not my friend.

Volume charts, imo, are the best type of chart to use for using volume analysis. First because there is a constant (400Vol, 1000Vol, 2500Vol) on every bar. That constant becomes a valuable frame of reference when gauging between which side is gaining the upper hand and when. If every bar has the same number of contracts traded then using that as a base would make it easier to spot when one side is gaining an advantage over the other using the Trade Size Analyzer for NT.

Unfortunately I don't use Volume charts. It's not that I don't like them. Far from it. I like the "constants" of both Range charts and Volume charts. For me, it's a trading platform decision. I trade with Ninja Trader and I have multiple time frames on my chart. Anyone familiar with Ninja Trader who uses multiple time frames on one chart understands the issue. Any other bar type, other than a time based chart, can get heavily messy as the whole equidistant bar thing gets negated. Since I need to have multiple timeframes on my chart and in order to get equidistant spacing between bars I have settled on a 20sec chart. For the 6E without the need for multiple charts I liked the 3 Range and the 400 Vol charts for my decision charts.

Trading volume on the ES can be very difficult. It's one of the reasons I stopped trading it. Because it is so commercially traded, different institurions have different agendas. An institution, that is only interested in a few ticks can alter the volume by entering the market to drive it counter to the direction, sufficient to make their ticks and then get out. The result is volume that is inconsistent and confusing. I don't like the ES. A year ago you'd never get me to look at any other market other than the ES. Now, you'd never get me to go back. It's too difficult, for me. There are much easier markets to trade than to have every tick so heavily contested.


How does trade analyser perform on tick charts?

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