1 - the CME order reporting changes help to mask large orders by breaking them up into smaller ones. This helps large traders hide their size.
2 - A hundred 100 lot orders should mean about the same thing as ten 1,000 lot orders. Just cause someone trades 1,000 lots doesn't mean he knows more than the 100 lot traders. It's the collective total that's important. If there are a hundred 100 lot traders against a million 1 lot traders, who will win?
3 - Price moves along and then it will turn. Why? Usually cause it a change in supply & demand. If price runs into supply, it'll turn down. If price meets demand, it'll rise. Think of an item on sale at a store. Its price will move up and down just like a futures contract. When there is no demand and a lot of supply a retailer will mark the price down. Demand comes in and supply dries up so price goes up.
The GF1 is a new camera from Panasonic. Some of us photography enthusiasts have been waiting years for this camera. It sells for $899. I went to amazon.com the other day and the price was $1199. $1199 for a $899 camera. Why? Cause amazon.com ran out and when they do they link to another retailer (taking a small commission). The other retailer figures they'll only get buyers if amazon is out and if that's the case they can put a higher price.
So what we want is to see a change in the supply/demand. I use HVC for this. HVC shows a large number of shares traded in a short range. That means, using supply as an example, price was rising looking for sellers and sellers appeared. So price couldn't rise. Thus a short range and high volume.
This also shows a transfer of ownership from buyers to sellers. The sellers will defend their position by selling into any attempts to move above their entry price. As a result price will usually test the supply point and if there is not enough demand price will then head down looking for demand.
Sometimes demand comes in and price will push above the sellers' entry price. This is called a breakout and usually results in at least a scalp profit.
HVC isn't the only way to use volume. VSA is also very useful. When I created this thread I had intended to make some VSA indicators, but I ended up not needing them because HVC works well enough for me.
I'm also experimenting with Cory's Volume Stop but I prefer to let someone explain how they use it cause I'm still playing around with it.
So there are lots of tools for the job but it all comes down to supply & demand and detecting a change from one to the other. Those are your turning points. Add a HH or LL for an entry and put the stop under the turning point (the HVC low or the low prior to it) and sit back and relax.
Here are two CL trades I did on Friday. I look for several setups to line up, increasing my chances for a winning trade:
1 - HVC
2 - A sine wave or phase shift cross (see my version of the d9 phase shift oscillator in the VIP section)
3 - Bullish / Bearish divergence in volume momentum (not seen, it only works on tradestation)
4 - A brooks H2/L2 pattern
When all 3 line up it's a high probability trade. I go for a couple of those and then I quit.
I'm not sure what you mean by "package". Just pick 1 indicator, I think Cory's volume stop is easier to use than my HVC so I'd suggest starting with that. Learn to use it. Master it. Could take a week, could take a month. Then once you're successful with it then try adding something else if necessary.
Here is friday's chart with both volume patterns & volume stop.
I'm very impressed with the volume stop and will be using it this week. If I see HVC & Volume Stop signaling at the same time then I think it's an even higher probability trade. In this chart VS got 8/8 trades correct. Pretty amazing.
The following user says Thank You to cunparis for this post:
Nice chart , I'm slowly reading through your thread here and find it very thorough Cunparis , thanks . I might even give the volume stop indi a try monday . I have been seeing potential in volume divergence and volume exhaustion . The latter is good at pointing to reversals . When I see a BIG volume spike with the trend then a countertrend signal , it usually means price will reverse if even for a short while .
The following user says Thank You to Eric j for this post:
That's exactly what I use as a confirmation tool. But instead of HVC & VolumeStop, I use VolumeSpike & VolumeStop. And if you have an increase in Volume, that's another indication of a possible reversal. Together with some price patterns you'll get some pretty high probability trades.
You my friend are really on to something here! I'm kind of "attached" to using HVC cause I've been using it for over 6 months now. But I'm very impressed with the two indicators you mention.
For a long time I have traded with only 1 price-based indicator (sinewave / phase shift osc) and 2 volume indicators (better volume & my own volume momentum). My volume momentum isn't possible with NT 6.5 cause the data feed doesn't give upticks & downticks, if it were I'd port it and be done with tradestation.
I really feel that limiting myself to 1 price indicator and using volume indicators is much more practical than having many price indicators.
Man I was really sick yesterday, up all night puking and pooping. But on the good side I get to stay in all day, told my wife I was too sick to do anything but sit at the computer. Otherwise I wouldn't have had time to look at these other approaches to trading volume.
Thanks for the compliment. I totally agree with your thinking. Whenever there is a volume spike it means all those shares were bought/sold from the other side. And when high volume traders go against the trend they usually stop the trend.
I love trading reversals because I can keep a tight stop and go for a quick win, not giving a crap about what the market is doing. I usually set my stop under the high/low of the last 2 bars and take profit at the same as my risk. If I risk 15 ticks I take profit at 15 ticks. As you can see in the charts, these volume patterns have > 50% success rate so a 1:1 ratio works well. I also find they work best in the morning session.
For a while I traded breakouts but my stop was often 30-40 ticks. After a few days losing a couple trades, I went back to trading reversals.