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Importance of Volume
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Importance of Volume

  #21 (permalink)
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mangolassi View Post
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.


Again absolutely agree with you. I have been trading for a number of years and I work with most European institutional Trading desks, providing them with TCA/best execution solutions working for a big firm, and analysing algos is part of what the product I sell to them does, so I know this is the case reasonably well.

Still as Retail Traders we have to do with what we have, and the best we have is the DOM as all Limit orders are not HFT, specially not as far as Futures are concerned. Also, an algo is just an automated program, there is often confusion between Algos and HFT, but if HFT instituions use algos, algos are not necessarily HFT related.


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  #22 (permalink)
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dom64 View Post
Still as Retail Traders we have to do with what we have, and the best we have is the DOM as all Limit orders are not HFT, specially not as far as Futures are concerned. Also, an algo is just an automated program, there is often confusion between Algos and HFT, but if HFT instituions use algos, algos are not necessarily HFT related.

Of course, but I specifically am talking about HFT algorithms. The fact that there are thousands of orders being placed and removed before you can even see them due to the inherent speed at which these firms operate at simply makes it unbelievable to me that anyone can claim the DOM gives you an edge anymore as a retail trader operating at a higher timeframe. The actual trades are reflected on the price chart, so I cannot buy the argument that the DOM (which is a collection of orders that may or may not be filled or may not even reflect what is existing at that moment) is giving you something that the price chart is not. In fact, I think the opposite is true.

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mangolassi View Post
Of course, but I specifically am talking about HFT algorithms. The fact that there are thousands of orders being placed and removed before you can even see them due to the inherent speed at which these firms operate at simply makes it unbelievable to me that anyone can claim the DOM gives you an edge anymore as a retail trader operating at a higher timeframe. The actual trades are reflected on the price chart, so I cannot buy the argument that the DOM (which is a collection of orders that may or may not be filled or may not even reflect what is existing at that moment) is giving you something that the price chart is not. In fact, I think the opposite is true.


Works for me, works for some others too, other people prefer something else, as long as it works for you, it's perfectly fine to be honest. The initial questioning was to know whether it was useful to look at volume, and we a look at volume even non directly was my point, as whether there are fake limits or not, the functioning of the market remains unchanged.


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My Intepretation On Volume

After RTH today I hashed a video together with respect to how I use volume. I am not claiming to be an expert at it and I am certainly not claiming to be a master trader. However I believe volume is very important when reading the footprint of the market.

As a side note, when I talk about today's move back to the IBL (that was ultimately rejected) I should have also mentioned Midpoint and VWAP are also important levels to keep an eye on.

I have not covered every single detail here but enough to show what my interpretation of volume is.

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Attached Files
October 14, 2016 (Volume Profile).mp4 (152.09 MB, 102 views)
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JonnyBoy View Post
After RTH today I hashed a video together with respect to how I use volume. I am not claiming to be an expert at it and I am certainly not claiming to be a master trader. However I believe volume is very important when reading the footprint of the market.



As a side note, when I talk about today's move back to the IBL (that was ultimately rejected) I should have also mentioned Midpoint and VWAP are also important levels to keep an eye on.



I have not covered every single detail here but enough to show what my interpretation of volume is.


Thanks mate, nice one. I will do that too with my use of the volume directly and indirectly. I don't think think this is about claiming to have "the correct" way to do things or to be a master, but volume is the very principle and mechanism of what makes a price and what makes it move. Everyone is free not to use it and to look at anything else they might find more useful and if it works for them, this is totally respectable, but given the stats when it comes to Retail Traders success, one can wonder why and may want to look at things from a different perspective. Even if someone decides to ignore the order book as they feel limits are a poker game (which in itself is another huge debate), volumes have always helped me trade tremendously, specifically when it comes to defining key levels. This is a healthy very interesting file, great to exchange what works well for us.


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Equivolume

I am a fan of volume studies. I am also a strong believer that volume changes often happen BEFORE price changes.

My favourite indicator is Equivolume indicator where the width of the price bar is adjusted according to the volume traded. It gives a better feel for the validity of price moves.

I also use average tick size which helps me to differential small vs big players locations.

Example from Friday. Gap up open but minute bars and tick bars show very narrow bars above 2042 i.e lack of buyers. That would have been a good place to short or take profit if you are long Overnight. I was bullish and hence didn't attempt short though.

1 minute bar
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First area of support at 2135 weekly vWAP- red square area - shows bigger players stepping in but no follow through. Sellers dominance continues with a big volume bar and selling goes on until 2127. Eventually big buyers step in with a retest and then back to vWAP. (Though I went long at 2132 and 2127, I didn't exit at right locations and trade management is another big piece in this puzzle)

I don't mean to complicate the concept of volume. It's just how I see the market and try to understand what's going on. When I apply this intra-day information with overall market internals, I feel like I am in-sync with the market. The only thing that is not happening yet is consistent profitability.

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Narcissus View Post
I am a fan of volume studies. I am also a strong believer that volume changes often happen BEFORE price changes.

My favourite indicator is Equivolume indicator where the width of the price bar is adjusted according to the volume traded. It gives a better feel for the validity of price moves.

I also use average tick size which helps me to differential small vs big players locations.

Example from Friday. Gap up open but minute bars and tick bars show very narrow bars above 2042 i.e lack of buyers. That would have been a good place to short or take profit if you are long Overnight. I was bullish and hence didn't attempt short though.

1 minute bar
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1000 tick bar
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First area of support at 2135 weekly vWAP- red square area - shows bigger players stepping in but no follow through. Sellers dominance continues with a big volume bar and selling goes on until 2127. Eventually big buyers step in with a retest and then back to vWAP. (Though I went long at 2132 and 2127, I didn't exit at right locations and trade management is another big piece in this puzzle)

I don't mean to complicate the concept of volume. It's just how I see the market and try to understand what's going on. When I apply this intra-day information with overall market internals, I feel like I am in-sync with the market. The only thing that is not happening yet is consistent profitability.


Very true regarding your first sentence and volume. Equibars is a good way to visualise volume too, thank you for sharing. Now with the volume with have one part of the equation and this is why key levels help us knowing what is more likely to happen. You mention a weekly VWAP, very good example of a key point. There are 2 elements to take on board when you see high volume like that in a bar, and the first and main one is to gage whether or not Limit order are going to absorb this high volume, or if instead Limits are going to be chewed through. If there is absorption, prices will go no further, and may or may not reverse. If there is no absorption and Limits get chewed up, then the inside bid/ask will go higher to find liquidity and the prices will move up. This is why watching Limit orders on a DOM is rather important. The fact that they are fake Limits/spoofing/front running/ping orders/quote stuffing/layering/etc is one thing, still, there are true limit orders who are here to be executed and/or to ring liquidity to the market as they are rewarded to do so on both side. And with practice and the right tools, a trained eye can tell, when it is likely to be real liquid or not, and at the very least, observe it and be ready for either option. This is the only mechanism that make the market tick up and down.
The 2nd element, is to gage whether high volume is most likely say high volume lifting the offer as there is a real conviction to go higher, so high volume with intent and aggressiveness, or if this is buyers getting out of short trades. We never know this for sure of course and it is always a combination of both, but having a better idea of what is most likely will help to understand the likelihood of Market orders (what we call volume since the beginning of the thread) being served by Limit orders (absorption) or if they will need to go to subsequent levels to be executed.
And likelihood is measured partly thanks to key levels. On a weekly VWAP there is likelihood for longs getting out of shorts for example. Getting out of a trade is not an agressive intent. It is urgent but will not be followed through (although other might join the move but let's keep it simple for now).




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Narcissus View Post

1 minute bar
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@Narcissus, your "1 minute bar" chart image is not showing up. Here's how it looks to me:

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This is an old FIO bug that sometimes happens when someone has uploaded an image to a post, and then takes a fair amount of time to compete and upload the post (I don't know how long "a fair amount of time" is, , but it's been noticed often.) For some reason, the original poster can usually see the image, but no one else can.

If you just re-upload the image into the same post, that's the way to fix it. FYI, many of us now only add images once we are done with the rest of the post, to reduce or eliminate the time between uploading the image and saving the post.

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1 Minute Bar

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1000 tick bar

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Narcissus View Post
@bobwest

1 Minute Bar

...

1000 tick bar

...

All good now.

Bob.

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