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rjay great work and cunparis as well this thread is really fantastic. much to be learned about the relationshp of volume and price but one thing i don't like about volume is it is subjective just like a time chart is subjective.
time charts are important but i think their importance is because everyone else looks at them and not because they are actually important on their own merit. why a 1 min cart why a 5 min chart why a 60 minute chart? news events and information comes out all day and comes out pre market and post market, not once per 5 minutes not once per 60 minutes etc. big traders can look to daily charts to find bigger picture. why daily? daily is just easy. daily does mean something. why not 36 hours instead of 24. why not 20 hours instead of 24. i think daily makes the most sense of any time based chart because it is one full day instead of some fraction. i think most traders cannot trade daily charts because you must have big balls and big pockets.
so now back to my reason for replying my question is the relationship of volume and price has always been interesting to me but also concerned me. volume is subjective based on what time frame you are relating it to. you can say that the market is having a light volume day or heavy volume day if you want to measure it based on say the first hour after the open or the break at lunch and compare those analysis day by day to say "ok this day is less volume than most days" and that can have an impact and i agree with that.
but to look at volume on a bar by bar basis especially when those bars are built in 1 minute or 5 minute intervals the concept starts to be lost on me. i think you are seeing certain patterns but you can't really point to an individual bar and know that a volume spike really means anything by itself. it could mean a reversal it could mean a continuation it could signal the beginning of a rally it could signal the end. volume is just a confirmation tool is my point and i dont think can be used as a trigger to take or not take a trade on a bar by bar basis.
i'd love to hear your thoughts on the relationship of volume to a single bar which is a 1 minute or 5 minute in your case. which also gets me back on topic a bit to what i first started thinking about 30 minutes ago when I started this novel. why is time important? time of day perhaps. opening bell, lunch, post market, etc. but why is 1 minute more important than 5 minute or vice versa. then why would volume per 1 minute interval vs 60 second interval be more or less important. what if it was a range chart? now what?
these are all things that trouble me with volume just like they trouble me with time. in general i try to avoid time based charts. i rarely do use a daily chart and have been known to look to 60 minute charts too but i try to avoid them. i am not using them because i find them helpful so much as i am using them because everyone else is.
also one question if you are still with me. i'd like to download these and play where can i find the bettervolume_rjay indicator to play with?
"Let us be thankful for the fools. But for them the rest of us could not succeed." - Mark Twain
Good questions and observations. Let's look at it from a different angle. We have to have some way to break up the daily bar if we are to trade intraday. So we can use:
If we want to compare volume to previous bars then constant volume charts are out. To me, ticks & time are not that different. Range bars are a different animal and I have very little experience with them so I prefer not to comment.
Now the trick to trading intraday, in my opinion, is to find a "level" (I don't want to say timeframe because it can be ticks) that doesn't have too much noise yet let's us see the important moves. 5min is noise to a trader using daily charts, and 1 min is noise to a trader using 60 min charts. It's all relative.
I had previously traded ES using 699 as my primary chart and 233 as my timing chart for timing entries, and 2097 as my trend chart. A 699 is often similar to a 1 min chart and the months of July & August had low range and lots of consolidation and I decided that 699 was just too much noise. I'm now trading a 5 min chart. On a 5 min I see around 3 really good setups a day, and a couple more that are "ok". I'm focusing on the really good ones. You only need a few trades a day to be consistently profitable, so for me looking at a lower level just adds more noise and more trades and less reliable results. But this is a personal decision. One man's noise is another man's trend right? My goal is to take the minimum number of trades. 1 per day is too few because if it's a loss then I have a loosing day. 2 might puts the odds at 50/50. So I think 3 is good because I need to failures to have a loosing day and if my really good setups fail then I should stop trading anyway. It takes a lot of discipline to watch the charts and only take 3 trades! To combat this I watch several markets. I participate in forums. I read books. I try to make trading as easy and relaxing as possible. Yesterday I got myself into trouble trading CL in a consolidation range and it was very stressful. Trading shouldn't be like that.
One thing that I suggest is that people watch 3 timeframes just for a while. Make each one 3x the other. 233 699 2097 is one example. 2min 5min 15min is another. or 5, 15, 45. The thing that one must get is that a cycle in the largest timeframe is a trend on the smallest. In my opinion once you get that, you can put away the multiple timeframes and just go back to one. When you see a small pullback it's a trend on the lower timeframe.
As for comparing volume bar to bar.. volume just shows participation and commitment (more shares = more pariticipation and/or more commitment). So when we compare one bar to another, we're saying:
"Price is making a higher high but less people are interested"
That's useful information. One could spend all day analyzing all the combinations of volume, so what I've presented with these HVC & LV patterns are just shortcuts to see important patterns without a lot of effort.
I think I have demonstrated in the numerous examples that HVC can put the odds in your favor. But I do not trade on HVC alone. I use that in combination with reading price action and other setups. I have been using volume in this way for almost 6 months now. I didn't get it at first. I didn't see it. And I didn't use it successfully. It takes a lot of practice, day in and day out. Just like trading. Some will put in the work to learn to use it. Others will not. If anyone isn't convinced that the HVC pattern can increase your odds of a successful trade then that's fine, there are hundreds of other things they can use to be successful in trading.
Finally, this is all a game of probabilities. Anything can happen at any moment. We can have a low volume pullback and then all of a sudden someone steps in with an order of 1000 contracts in the direction of the LV PB and it turns into a valid trend with increasing volume. These volume patterns don't predict anything, and my read on the market changes bar by bar. The volume patterns simple say that over a large set of trades, trading with the pattern is more likely to be profitable than trading against. That's all. If it doesn't work on a trade then so what? There are 100 more trades coming up.
I'm currently short ES on the daily chart based in part by HVC but I also have other reasons. It's currently against me 10 points. I was ahead 5 or 6 points yesterday before the market reversed and started rallying up. Maybe I should have covered then on this new strength? I don't know. Don't care too much cause if the stop is hit there's another trade coming up that will make more than I lost.
I hope that gives you some things to think about in regards to your questions. Please feel free to continue the discussion.
And for RJ's indicator, it's a work in progress so you can ask him for the latest version. My volume patterns indicator which I use every day now is in the download section.
Here's a current trade I'm in on ES during european session. ES went in a trading range and then we got two HVC bars. I put a sell stop under the trading range. It got hit and now we have a low volume pullback. I expect this to continue down but if it doesn't I'll stop out and move on to the next trade.
I often exit too early and regret it, and I kind of wondered when I exited this short; but this is a classic pattern and I was prepared to enter short again... but it did a full retracement so I was very glad I exited when I did. I think the marked up chart will explain the rationale... I use stochastics and the cycle identifier, but actually I think you can see it clearly just from the volume price pattern just keep in mind that just because you get a pullback/reversal pattern, it doesn't necessarily mean that it will be a complete reversal. Here's the chart.
I don't understand what your entry & exit were. Where it sells sell stop, that would be a good exit for me if I was short. There was a double bottom and your line goes across the high of the red bar so if price breaks that it's making a higher high.
The HVC leading up to the double bottom is a good clue that buyers are coming in. Usually that will stop the decline but you're using range charts so I don't have experience with HVC on range charts.
I entered late because I wasn't really watching it until someone brought it to my attention... but on this chart, the entry would have been at .60/.55 area and the exit would be .18 / .21
Actually I find the volume on a range chart to be quite good.. but I see it on the DOM as well... if you see a lot of volume and the range isn't moving much... there's the clue.
I had the sell stop set in case price fell out of the bottom of that congestion because not every reversal pattern results in a reversal.
I like what caprica is saying and agree time is relative and just a way to break up the chart and you end up breaking up the volume the same way when you do that. Does it give you a "fake" picture of volume then? We have to remember that all these charts we trade off of are conceptual. Price and volume are continuous and don't stop at the end of the 5min, day or even the week. Does breaking the chart into segments of price and/or time give reliable signals...? Ultimately they are your tea leaves to read.... Here is a 5 min chart with volume ala cunparis side by side with what I normally use . I like the cunparis style of a clean chart and use it for an overall picture. Signals are similar... Somewhere on this site cunparis asked for some side by side with range bars with the 5 min so here you go.
I took the first screenshot while I was in the trade...I didn't like doing that and won't again. Too distracting... but thought you might like to see the trade as it went on. I figured it might stall at 1.4673 level due to trendline on 5min so I was ready to exit even or small but price broke through after the HVC - (which I am learning means indecision) I move my stop to near the HVC when I see it. Anyhow. Good discussion. Hope I can add to it.
edit - looking back now on the 5 min....A "safer" entry may have been on the longer term trendline break after the HVC....
I thought this was a stellar example of using volume to at least exit a trade and then to enter the reversal... an aggressive trader could do an SAR at the xS marker. Chart (yes, I remembered to attach it this time)... is annotated for entries/exits.
This chart also shows how to trade trendlines.. in this case a falling wedge.
