For most people it is hard to understand volume. I am one of them. That's it.
How much time would it take you to understand moving average? Or MACD ? Or RSI? We all learned how to use new indicators in matter of hours, however volume is not something as obvious.
It's not that people don't want to learn it. It is just so much harder to learn it than any other technical indicator.
What is needed is a short description about meaning of volume (not 1000 page books) and tons of examples how volume should affect our decision
I'd like to offer a straightforward volume scenario. I am sure there are others but to me there is at least this one that should provide a relatively simple avenue to learn.
Suppose you are trading using the Depth of Market. Suppose you got comfortable with a certain product (e.g. the ES or the Bund). Suppose also, because you got comfortable, that you now have a pretty good idea what the average size traded at each level is.
Now suppose that at one point you start seeing trades taking place that are 3 times as big as the average size that you know usually take place.
That's the first indication that something may be happening. It could be that somebody is trying to 'defend' a specific level. It could be that that specific price is of interest to many people. Or it could be other things.
Clearly, 'something' happening is not enough of a description, but if you haven't already done so and if you're interested, I would recommend 2 sets of videos that delve into this concept and, again, in my view provide enough of a starting point to be able to build your own understanding on the subject of volume.
Unlike RSI or MACD, volume is not an indicator. You want to buy at 1.27 and I want to sell so we do a deal and we exchange a contract. This creates a volume of 1. Someone else then wants to buy at 1.2701 and someone else is willing to sell and another deal happens so this creates another volume of 1. If there was limit orders of 1 at each level then the price will move up accordingly.
This is order Flow, what makes the market move up or down, nothing to do with an indicator, and all of that can be seen on a DOM. The whole thing can take a while indeed to learn, but understand that volume is simply exchanging contracts and the only thing that makes the price move (or I should just say the only thing that makes the price very simply), is key.
This is not like using an indicator whose use is debatable, but just the mechanism of the market. I have not decided it is the case and this is not coming from me, it is simple a fact and how the market moves.
Everyone uses and looks at volume simply by looking at the price, even if unknowingly. It is the underlying of the price. Volume precedes the price.
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.
This is overly simplistic and not necessarily true. Huge volume can be at a single price level and does not have to move price. What moves price is order imbalance at a particular instance of time, and overall volume has nothing to do with it.
Absolutely agree with you but this was just to explain that without volumes there is no moment. This is not overly simplistic but a fact.
Huge volume can be at a price level and not move price if and only if there is absorption, which, I am assuming, if what you mean by imbalance. What moves the price is the relationship between Limit order and Market orders, which is what you see on the order book.
This is what I look at and use when I trade, this is what is being taught by Jigsaw, NOBS, etc.
Yes but what we are seeing on the DOM are not only simply a set of standing limit orders, but also a collection of thousands of HFT algorithms placing and removing limit orders as price moves in order to exploit other algorithms. Most of these limit orders will never be filled because they will be removed quickly by the algorithms, and you probably are seeing only a small fraction of them coming on and off. Keep in mind that your DOM (and also your eyes) is not fast enough to update at the level of microseconds, so what you're seeing is really not an accurate reflection of what's going on in reality.