Volume and reversal | Traders Hideout

futures.io - futures trading strategies, market news, trading charts and platforms

Traders Hideout

Discuss day trading practices and futures trading strategies on this forum for all markets. This forum is also for discussing and reviews for brokers, data feeds, and commercial or third party add-ons


Volume and reversal

  #11 (permalink)

Legendary Elite_Member
Wiltshire, United Kingdom
Trading Experience: Beginner
Platform: Jigsaw daytradr
Favorite Futures: US Equity Index Futures
matthew28's Avatar
Posts: 737 since Sep 2013
Thanks: 1,503 given, 1,246 received

One quote I picked up along the way is that markets move when people are wrong and they need to quickly get out of their positions, ie they need to exit aggressively not passively with limit orders sat waiting. When both sides are happy they are doing nothing and price gently ranges.
So as an example, price comes up to a visible level that people think will break, momentum traders pile on, sellers try to hold them back so you get a high volume node as they fight it out, then one side wins and the other side are wrong (at that moment in time), and need to exit out as price moves against them. Or price goes through and runs stops, short term momentum traders have run price through in to their resting exit limit orders, and price then falls back when the aggressive buying ends. At the breakout level more volume will come in as people try to enter on the pullback or add to earlier positions ,or cover earlier 'wrong' positions. That breakout level becomes a high volume node and pivot point where as price moves away from it one side is making money and one side is losing money. Price tends to break hardest and furthest from major levels where a number of different time frame traders are wrong and more people need to exit their positions as price moves against them and the level looks like it is failing to hold. The faster a break is the more quickly people are caught off side and the more aggressively they need to get out.
(There is always the opposite example in trading though like a low volume reversal where price moves quickly one way quite often leaving a liquidity vacuum behind in the order book. Momentum traders chase it up then it get too high for buyers to aggressively want it, price starts to tick down and all the late entries bail out and sell before their profit disappears and run it the other way. This is more of a news scenario where the order book is thin and price quickly takes large swings one way then another).
My 2 cents of possible answer and digression.

Visit my futures io Trade Journal Reply With Quote
The following 2 users say Thank You to matthew28 for this post: