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Importance of Volume

  #17 (permalink)

Salt Lake City, UT
Trading Experience: Intermediate
Platform: SC, NT, MT
Broker/Data: AMP
Favorite Futures: NQ ES YM Bonds
Posts: 246 since Mar 2010
Thanks: 49 given, 354 received

My view is price does not move without volume - be it big or small amounts. Trades must occur for price action data to be printed, thus volume must be present before price action data can be created, generated and documented. It is important to note the size of the move is not always representative of the volume involved. A little can go a long ways just as a lot can go nowhere and visa versa. It took me a long time to accept that it's not always (hardly ever) a F=MA type equation to solve. And sometimes s___ just happens.

What I find most interesting is in the quantifying of volume as aggressive sell volume or aggressive buy volume. Trades at the ask are buys and trades as the bid are sells - hope I said that right. But in the end it doesn't really matter, its just a consistent way to quantify or measure it.

I then consider market context...are we at a low, are we at a high, some historic S/R, yesterdays close, etc... at these S/R levels it is interesting to observe aggressive volume being absorbed as fast as it is being generated. If volume is increasing very fast in comparison, say to the last 10 bars of data, but price is holding - whats going on, how can that can occur, who can do that - I know my banks not that big. To me volume is key in understanding potential future direction.

And why do I find these levels important? Well, why is the price of a car in the Kelly Blue Book set as it is - perceived, accepted and documented value. Further more, if I wanted to sell food from my food truck, I would have much better odds of successfully doing so where people are known to be as opposed to aimlessly driving around looking for customers. The sharks feed at these locations - look at the volume trail they leave behind.

Even though big guys can hide there trades in smaller amounts than the whole lot they intend to trade, their intentions will always be reviled in how the volume plays out. Volume movement reminds me of a bobber when fishing.

And how is it that volume on a tick chart varies? Why its't it always equal to the size of the tick bar setting? Are a bunch or retail traders playing if the volume is 2,3 or 4 times the size of the tick setting? Big guys make big volume, you and me are but drips in the ocean.

I further second the suggestion of reviewing Jigsaw videos as well as any NOBS, Lance Beggs and NOFT trading links - great stuff readily available just google it.

I believe that no matter how any other indicator draws a setup, it is fundamentally and logically based on what has previously traded, meaning previous volume - even if it is sub-seconds prior to the indicators signal.

Learn one thing and become good at recognizing it, one edge. Practice on becoming very, very good at recognizing it.

Because I believe it is leading, I find volume offers me an edge, specifically from a timing perspective at S|R levels.

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