I couldn't trade ES without the TICK. When it's at an extreme and you see divergences, higher highs in price and lower highs from TICK then you know things are reversing. I won't enter until I see the TICK turn.
Here's what you do, after you're done for the day pull up the TICK index and go back over your trades. See what the tick did or didn't do.
Hey Dragon thanks for the feedback. I was wondering why there isn't more participation in the thread. So in my last post I decided to start with a really simple topic which is the low volume pullback. I marked some examples on a chart and then I posted a chart without any coloring. We have to learn to read volume without better volume, because that's the only way to truly understand what's going on and also because Better Volume can't detect everything and sometimes detects things that I feel it shouldn't. So I asked people to try and find the LVPB on the unmarked chart. So far no takers. I hope you'll try the exercise. I have quite a few in mind and I think this is the way to learn to use volume, one step at a time. I'm still improving but it gets easier and quicker with practice. You'd be surprised at how many times this can keep you out of a trade and/or get you in on a continuation after the pullback.
Really, I can't imagine trading without volume. But I know it's possible because feb's system II method doesn't use volume. I was very profitable with it this week without any volume (not even OBV).
I was thinking about this today.. just because there is low volume right now doesn't mean the next bar can't move on huge volume. Volume can come out of nowhere. SO I was asking myself "is it really necessary?" My conclusion is that it helps you to understand the current situation. If big volume comes in on the next bar then that's new information so you form a new outlook. I think volume isn't necessary but it helps quite a bit. I have my 699 tick chart that I marked up some volume patterns from Friday. It was amazing how volume patterns marked all the turns. I didn't post it yet cause it's a high volume pattern and I first want to do the low volume patterns. But it was impressive. Ok I'm posting it here since I mentioned it. The pattern is HVC which marks turning points. There are always HVC bars around the open & close, so apart from that it's hard to find an example of where HVC didn't mark the exact turn or provide a few bars warning of an impending turn.
Look at the chart and see if you think it's useful.
I've been away from my MacBook and MacBookPro machines for about 20 hours, on a Spiritual (Christian) retreat. I just read your responses now (17:32 GMT+ 1). Thanks for the answers to my questions. I'll follow up on your works as you develop them.
As promised, I'm updating readers on the relative volume norms for the S&P 500 e-mini (ES) market. Remember, these represent the median volumes for each half hour period during the market day. I will be posting more on the topic of relative volume in coming days. For more information about relative volume, check out the recent post on the topic as well as this explanation.
The numbers in parentheses are the standard deviations around those median volume values. That gives you an idea of what a very high or low volume figure would look like: I generally consider values above or below one standard deviation to be meaningful.
Note that all times are Central Time, U.S.; the final period is the 15 minute "after hours" period in Globex futures. The values go back to mid-June (45 trading days), which is when the current contract became the front month.
8:30 AM - 232,738 (45,819)
9:00 AM - 206,277 (48,136)
9:30 AM - 133,732 (37,981)
10:00 AM - 105,369 (36,975)
10:30 AM - 95,450 (40,804)
11:00 AM - 61,769 (25,008)
11:30 AM - 56,682 (21,972)
12:00 N - 67,068 (30,186)
12:30 PM - 61,687 (23,390)
13:00 PM - 82,336 (32,547)
13:30 PM - 76,717 (44,062)
14:00 PM - 99,610 (35,349)
14:30 PM - 194,488 (56,432)
15:00 PM - 95,539 (25,427)
The numbers dramatically highlight when institutions tend to be most active in the stock index futures market. Knowing when large participants are active is important in handicapping the odds of markets moving significantly, as volume correlates with volatility by about .65. More on this topic to come shortly.
The following 2 users say Thank You to Jeff Castille for this post:
Hopefully you've had a chance to review the previously posted "Relative Volume Norms" that Dr. Brett Steenbarger posted. (sign up to follow him on twitter.... the guy is a veritable fountain of trading knowledge)
Now, here's what I know about volume..... I know what time of day it occurs. That's all.
Check out the time of day that the most volume occurs...... from the open of the cash market until lunch time in NYC. This in my opinion is the best time of day to trade because the institutions are participating.... this brings follow through to your trades.
Then...... the slow period.... lunch time ...doldrums.... dead zone.... whatever you want to call it. How about "No Trade Zone" This does not mean that from time to time something doesn't happen.... but the thing that happens most is...nothing. Why put yourself at risk when the chances of your trade reaching your target are not supported by broad participation?
Then..... Back from lunch... usually a continuation of where "they" left off. You'll notice that things pick up around 11:00 PST 13:00 CT. Does this mean that it's good to trade from this point on? No.... from 11:30-12:00 PST the market behaves in a very erratic manner which Tom Busby of DTI has termed "GRIM REAPER" I didn't listen to him and have been ripped up several times during this time period. This is due to the bond market closing.
Then.... last hour... always fun. Personally, I just look for one trade during this period. I find that it occurs at 12:35 PST plus or minus. If this trade does not materialize by 12:45 PST I'm done for the day.
This is a study of people..... their habits.... what they do everyday, their patterns of behavior. That's all. Trade when participation is at it's maximum. That's VOLUME.
Jeff, very insightful post and very useful as well. Thanks for all the hard work you've put into posting some very useful information. I do have one question, which I'm sure has been answered by you in another post, but could you tell me where your initial stop is and do you move it at all while you're in the trade?
This is an ongoing investigation...... my basic Ninja 7/11 ATM strategy has an initial stop of 22 points on the YM. This is pretty arbitrary. I will adjust this stop as soon as my order is filled. The criteria will usually be 3 ticks above/below the recent swing high/low. But remember.... you must know what the stop is before you enter the trade.
After my first target is hit (+7) the ATM moves the stop to (-7) this still gives the trade room to breath and in a worst case senario a breakeven trade if the stop is hit.
This is a scalping strategy. No runner. Others who use a similiar strategy let the second position run till they see some "exhaustion" then simply close the trade.
I'm currently investigating putting my stop at the high (short) or low (long) of the bar that preceeds the entry bar. If your entry is good this is all the room you need to give it. This is my current thinking.
Last edited by Jeff Castille; September 6th, 2009 at 09:06 AM.
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