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How to use volume in your trading
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How to use volume in your trading

  #101 (permalink)
Trade with the flow
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RodS View Post
Is it because of the coloring?

I have attached this chart with some of my views of the Price Action and Volume.

Please critique.

Thanks

Rod

I ran your volume indicator. You have a lot of yellow bars with high volume, that can't be. The blue bars should be high volume small range. They can be low volume if the range is very small. It's the ratio range/ volume that counts.

Here's my chart with your indicator and my chart with Tradestation.


Quoting 
High Volume Churn bars are identified by dividing volume by the barís high to low range and then looking for the highest value in the last 20 bars (default setting).

This sounds like an easy formula and it should work historically because you don't need upticks or downticks. So my idea is to not use upticks & downticks and just calculate this ratio and plot the blue bars when you find one.


Quoting 
Low Volume bars are identified by looking for the lowest volume in the last 20 bars (default setting).

Pretty much the same idea. Give that a try, it'll work historically and then you can fine-tune it much easier without running it for a while just to see the results.

the difficult part is the climax bars, but I don't use them in my daytrading anway..

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How to use volume in your trading-es-09-09-9_8_2009-699-tick-rjay.jpg   How to use volume in your trading-es-699-tick-rjay-ts.jpg  
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  #102 (permalink)
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Do you mean RJay's Volume indicator?

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  #103 (permalink)
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RodS View Post
Do you mean RJay's Volume indicator?

Yes, sorry about that. My brain got chopped up.

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  #104 (permalink)
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Daily chart LV PB

The other day I indicated a few low volume bars on the ES daily. I expected volume to pick up today with the end of the summer. But today was another LV day. this shows a lack of buyers. This is good information! ES had a big pullback, yet there is little interest from buyers. Thus we have a LVPB.

You will also notice price is up against the former trendline (red) and also the broadening top formation (which is loosing reliability with each "break"). it's also near the beginning of the big volume down bar. One would expect a bit of resistance here.

So how could we trade this? I wouldn't enter on a LVPB unless there is a HVC and then price breaks the low of the HVC. This is one way. Stop would go above the HVC bar. Advantage is a low risk entry (HVC bars are short). Disadvantage is the HVC could just be temporary pause and not a reversal.

Second way is to wait for a break below the last swing low pivot which is also a HVC bar. Stop would go above the top of the pullback. The advantage of this method is the market has to show you it's continuing down. The disadvantage is that you're vulnerable to false breakouts.

Let me know what you think. Keep posting the charts. My goal is for everyone to find one trading opportunity with a LV or HVC pattern. even if it's in hindsight, that's ok. the key is to practice.

Next topic is LV Test.

PS Bonus chart: GLD has 2 (almost 3) HVC bars on the breakout. That shows sellers are intent on capping this breakout! I base decisions more on futures than GLD but GC looks similar.

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How to use volume in your trading-20090908-es-daily.jpg   How to use volume in your trading-20090908-gld-daily.jpg  
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  #105 (permalink)
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you folks are giving more emphasis on volume as it is plotted vertically. pls do also plot volume horizontally aka the market profile or volume profile way. plotting volume horizontally provides a complete different perspective and provides much more info.

sadly NT (dont know whether they will incorporate it in NT7) doesn't allows profile to be plotted on historical data . only live data

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  #106 (permalink)
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bukkan View Post
you folks are giving more emphasis on volume as it is plotted vertically. pls do also plot volume horizontally aka the market profile or volume profile way. plotting volume horizontally provides a complete different perspective and provides much more info.

sadly NT (dont know whether they will incorporate it in NT7) doesn't allows profile to be plotted on historical data . only live data

Hi Bukkan, I've never really looked at Market Profile despite wanting to read the book for a while now. Could you post some chart examples?

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  #107 (permalink)
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cunparis View Post
Hi Bukkan, I've never really looked at Market Profile despite wanting to read the book for a while now. Could you post some chart examples?

heres just a small eg.

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  #108 (permalink)
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bukkan View Post
heres just a small eg.

It's Chinese to me!

Just kidding. Looks like it takes a while to learn. I encourage you to start a new thread about Market Profile and teach us the basics. I'm sure there will be a lot of followers.

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  #109 (permalink)
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cunparis View Post
It's Chinese to me!

Just kidding. Looks like it takes a while to learn. I encourage you to start a new thread about Market Profile and teach us the basics. I'm sure there will be a lot of followers.




Market Profile - Traders Laboratory have a lot of good stuff you can go through.

profile is really good if you trade support and resistance. helps a lot to identify your stops etc.

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  #110 (permalink)
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Low Volume Top & Volume Splitting


Looks like interest in the thread is dying out, I suspect asking people to make some effort was too much for most. But that's good because it means those that are still here and participating are motivated. Learning to use volume is hard work. There is no indicator to tell you to enter exit. You have to analyze what volume is telling you. The only data we get for each tick is its price & volume. It takes a lot of practice but if you're not using volume you're trading with only half of the data!

Two topics for today: LV Test & Volume Splitting.

LV Test - In the chart I marked it as Low volume Top but it's the same, I prefer test. The theory is that a top or bottom is usually tested and if tested on lower volume then it will hold. We could be experiencing that in Gold right now btw. The problem is that you have to know buying volume from selling volume. If you're at a top and you get a ton of selling volume without knowing it's selling volume then you would think "Great we got higher volume we're going up!" when in fact it's the opposite. I've seen market gurus and market timers fail to make this subtle distinction!

So whenever you have a top, know there is a possibility of a test. I haven't done any statistics so I could be spurting out a bunch of crap so please look at charts and test this idea for yourself. Just know that the test could be hidden on a smaller timeframe. In our example the test was 10 minutes later so on a 15+ min chart you wouldn't see the test.

When the test is on lower volume (lower buying volume, and if you don't know buying from selling volume it's all described in the Tom Williams books but we can discuss it here I just ask that you make some effort), it's usually ripe for a reversal. Just remember that at any given moment things could totally change and everyone could start buying. This is why we use stops. A news event is one example. A rumor of earnings, takeover, one big hedge fund entering, anything.

In my trading I look for the LVTest and I put my stop above it. If the stop is hit then you can consider reversing. This is exactly what I did on a gold trade yesterday.

Volume Splitting:

there was some interest in this so I dug out my volume splitter. I don't use this in my trading, I haven't found a consistent edge. But after marking it up for this post I may reconsider.

The split % indicator, which is incorrectly labeled as momentum, it's not momentum, it's just the % of volume of each trader group. The 5 is a lookback so the trader groups are 1-9, 10-99, 100+. The small is red and is about 15% of volume. Med (yellow) & large (green) are about the same around 40%. The colors are intuitive, think green light, yellow light, red light STOP!

on the momentum split, this is my momentum indicator split amongst the trader groups. in the first two vertical lines which mark the top and the LV Test, the large traders were selling into the first top. Then the medium traders were selling into the LVT (selling = their momentum is down = bearish). With both selling there was no one to support the rally (the 1 lot traders didn't have a chance) and price went down.

Then large traders started buying. This made a little pullback but you should see it was a LV PB and we know what to expect. Basically the large traders started buying but the medium traders didn't follow. So the large traders gave up. There could have been a news event at this point because everyone started selling, we will never know and it doesn't matter. A stop below the start of the pullback would get us out of a long and possibly into a short for the reversal. I didn't trade ES yesterday so I didn't take this trade. I was trading YM and would have taken it but this trade occurred while I was out for dinner.

The next 3 vertical lines: the small traders start buying way too early. I know this all too well cause I'm in this camp! I'm always early. Then the large traders started buying but a bit too early too (2nd line). The medium & small traders continue buying it up and then the large traders start buying. This shows that you can't just follow large traders! The medium ones were right in this case, but they are wrong elsewhere. This is why I said I didn't find a consistent edge. This is all a lot to analyze in real time and I prefer to keep it simple. But it's interesting to go over it at the end of the day to see what happened behind the scenes.

At 15:24 we see a divergence between the large & medium traders. By 15:52 they're in sync and we're heading down into the close.

Assignment (for those who are motivated) : Post a chart showing a low volume test. Tell how you could trade based on the low volume test & your other criteria.

Next topic: Using these volume patterns in your trading (if there is interest and participation, if not then this would be a good place to stop).

Have a good weekend.

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