I have searched the site for information on a good book or online source of information for learning to use volume charts to trade using volume price analysis – I think some call it volume spread analysis, but have not found what I am looking for. Can anyone point me to some good material?
So far I have been doing ES SIMs using tick charts. I read a thread on this site saying volume charts were superior, and I would like to check them out. I did not have enough posts to respond to that thread.
There is a lot here on volume spread analysis (VSA). I just went up to the Search box in the upper right corner of this page and typed in "VSA" -- I got 11 hits on threads with VSA in their titles. Other search terms, or Advanced Search, may get some more. You can find a lot if you take a look.
Generally, "Volume Spread Analysis" relates the size of individual price bars to their volume (the "spread" in the name is the price spread or range of the bar), and draws conclusions about what that may mean. It's a little involved, and many people think it's not worth it. It may or not be useful; you would have to judge.
But that is very different from "volume charts" in the sense of volume bars, which simply draw the bars based on the number of contracts traded (volume), instead of the number of trades, the way tick charts do. Many people think that volume bars in this sense do what tick charts do, but better. (Is it more important to know how many trades there were, or what the total size was? Again, an individual matter.)
If you mean volume charts in this sense, you can simply compare them to tick charts. For ES, assume an average trade size of between two and three contracts per trade, and then plot a volume chart with, say 3000 for bar size, and a tick chart with 1000 for tick bar size, and see which you like. (Probably no big difference, although I do use volume charts.)
Essentially, there are many methods, but no magic method. Darn.
I hope this helps your search.
Last edited by bobwest; September 25th, 2015 at 09:48 AM.
I did mean volume charts, but specifically using them to trade using volume price analysis or VSA. I have been using tick charts for this, and think I know what to look for when I use a volume chart instead, but wanted to confirm this from a reliable source. I'll take a look at the VSA information to see if that helps.
As Bob said, VSA, is the relationship between the spread (range/size) of a bar and the total volume of the bar. If you are trading VSA, then you need to use time based bars (i.e minute/hour bars), and not volume bars. I also think that tick charts are not very good for VSA.
Tom Williams wrote a book about VSA, and you should be able to down load it for free from Trade Guider.
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Yeah, that's the problem with VSA and volume bars: by definition, all the bars have the same volume!
Example, ES 3000 volume bar chart:
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Normally, you'd look at the bar range, see what kind of volume it had, and draw a conclusion based on them. Here, with no difference in volume, I'm not sure how you would do that.
I have seen tick charts with VSA. They do tend to have similar volume per bar, but not necessarily the same, so it could work with them. You will see bigger volume changes with time-based charts, however.
I think that some of the appeal of volume charts is simply that each bar had to have the same volume, so the height of the bar already shows a price/volume relationship. How that relates to standard VSA, however, I couldn't say.
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I have actually started using delta volume on my volume chart to determine the aggression of buyers/sellers, and that does give some VSA signals (no supply/no demand). However, a volume chart is not as good as a time based chart, for VSA. You can use a speed indicator (like the RPM) to help seeing speed on a volume chart, as that gives you an indication of volume over time.
Here are two 5 min ES charts from today, and I have shown two VSA instances - Buying Climax and Breakout with increasing volume (my favourite breakout set up). I have attached a 10K volume chart to show that it would not have been apparent to identify these instances on it.
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I've read A Complete Guide to Volume Price Analysis by Anna Coulling, and she uses tick charts to do it. Each bar has the same number of trades but different volumes of contract. Then contract size divided by number of quarters of ES price movement (between open & close) gives volume per quarter of price movement, and from this you can work out Low Volume (LV); Top/Stop Out Volume (T/SOV) etc. I've found it more reliable to merge 2 bars (where the open of the 1st and close of 2nd is no more than 1 quarter point apart) to do this.
Taking a brief look at volume charts, I think it should be possible to do a similar thing. If using volume chart, LV appears to show up as a bigger bar/price movement for the fixed volume (so if I am using a 2000 contract volume chart and I believe 500 is LV, then that would occur when price movement is 4t or greater). T/SOV appears to show up as small price movement (probably on merged bars – again with open and close between the bars no more than quarter point apart). Then all I have to do is observe the size of the bars to determine what sort of volume I am getting. Thought there would be something out there that discussed this in more detail.
Last edited by GeorgeW; September 26th, 2015 at 05:14 AM.