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

  #41 (permalink)
Trade with the flow
Paris, France
 
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Low volume pullback pattern

I'm worried that people aren't participating because they are waiting for an indicator. I don't think we need one, although it helps to learn to see them.

I think the first step is to learn how to identify the bars without an indicator. So let's try a really easy one. This is a pattern I learned from Barry the author of Better Volume. It's called "Low Volume Pullback" (LVPB).

Basically what happens is price is moving along, let's use the short side as an example. So the sellers get exhausted and without more sellers price isn't going to continue down. A minority of the participants (should we call them amateurs or minority? it doesn't really matter whether they're pro's in the minority or amateurs really).. so the amateurs see it slow down and start buying. This makes a pullback.

If you have a small trend on above average and/or increasing volume and then you see a pullback on low volume, it's likely that it's just a pullback and not a trend reversal. I've labeled two of these on the first chart with a yellow arrow.

Here's one from the daily chart of ES (2nd attachment). I marked it with a yellow arrow again. I'm showing this one for the simple reason that Better Volume didn't catch it! This is why it's important to learn to see it for yourself. For every bar you ask yourself "How does this bar's volume compare to the previous bars?" I ask myself the same thing for the open, close, high, low. To me this is the basic building block for reading "price action".

In this case we had 4 lower lows and then a higher high on lower volume. Bingo! LVPB!

So here's the homework:

1 - Take one of the charts you normally trade with and identify a low volume pullback. Trend doesn't have to resume afterwards, a trend reversal can start as a LV PB and then turn into a full reversal. So don't look for something that is perfect, just look for a pullback on lower volume. If it turned into a trend reversal we can analyze it and try to find out why. These should occur all the time so it should be easy to find one.

2 - Look at chart 3. See if you can find a LVPB. Give it a try before reading on so that you don't see someone else's answer.

Attached Thumbnails
How to use volume in your trading-20090903-es-699-lvpb.jpg   How to use volume in your trading-20090903-es-daily-lvpb.jpg   How to use volume in your trading-20090903-es-699-unmarked-lvpb.jpg  
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  #42 (permalink)
Market Wizard
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cunparis View Post
I'm worried that people aren't participating because they are waiting for an indicator. ...

how can any paticpate with the rainbow color like that. Maybe we can talk about a single red tall vol or a very low yellow vol bar but a buch of rainbow vol bars? I give up.
ps. oops didn't see your pics above, look much better , still too many bars to consider.

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  #43 (permalink)
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cory View Post
how can any paticpate with the rainbow color like that. Maybe we can talk about a single red tall vol or a very low yellow vol bar but a buch of rainbow vol bars? I give up.
ps. oops didn't see your pics above, look much better , still too many bars to consider.

Hi Cory, it's funny that we both came to the same conclusion. I now plan to go one step at a time and build on each idea. I'm not sure where we'll end up but I'm confident we can learn a lot along the way.

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  #44 (permalink)
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cunparis,

I'm trying to match my charts to yours.

I noticed that your volume bars don't start at 0, they start at the lowest total count for 1 bar.

Does anyone know a formula to derive the lowest volume bar. Seems like the max, min, highestbar, lowestbar deal only with price.

Thanks,

RJay

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  #45 (permalink)
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RJay View Post
cunparis,

I'm trying to match my charts to yours.

I noticed that your volume bars don't start at 0, they start at the lowest total count for 1 bar.

Does anyone know a formula to derive the lowest volume bar. Seems like the max, min, highestbar, lowestbar deal only with price.

Thanks,

RJay

Tradestation does this. I'm not sure if I like it or not. It's good to save space but judging volume relationships is different. You can see bigger or smaller but not "twice as big".

Here are today's charts with the normal volume bars. I've marked some low volume patterns on the 699 tick chart (middle one). What I'd like to do is program an indicator to mark these bars. I have lots of ideas, so if we can get the indicator going I think we can do some really great stuff with it.

Attached Thumbnails
How to use volume in your trading-20090903-es-workspace.jpg  
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  #46 (permalink)
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cunparis View Post
Tradestation does this. I'm not sure if I like it or not. It's good to save space but judging volume relationships is different. You can see bigger or smaller but not "twice as big".

Here are today's charts with the normal volume bars. I've marked some low volume patterns on the 699 tick chart (middle one). What I'd like to do is program an indicator to mark these bars. I have lots of ideas, so if we can get the indicator going I think we can do some really great stuff with it.

cunparis,

I can tell your anxious to get this indicator.

Well, here is my latest version.

Give it a go!!!

RJay

Attached Thumbnails
How to use volume in your trading-es-09-09-9_3_2009-233-tick-.jpg  
Attached Files
Register to download File Type: zip BetterVolumeNT2.zip (7.4 KB, 170 views)
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  #47 (permalink)
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I modified the Better Volume indicator for MT4. I find the STOPPING VOLUME indicator to work even better.

Looking for divergence between price and volume can also give you a clue.

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  #48 (permalink)
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Do you mean this??


TradeStation EasyLanguage Code: Stopping Volume

Inputs: TextColor(White), Space(True), StopAlert(True),
SpaceMulti(1), TextSpaceMulti(0.75);
Variables: OffsetBottom(0), OffsetTop(0), OffsetInput(0);

If Space = True then begin
Value1 = Average(Range,10)*SpaceMulti;
Plot1(H+Value1,"TopSpace",Tool_Black,0,0);
Plot2(L-Value1,"BottomSpace",Tool_Black,0,0);
End;

OffsetBottom = 0;
OffsetTop = 0;
OffsetInput = Average(Range,10)*TextSpaceMulti;

Condition1 = Ticks > Ticks[1] and Range < Range[1] and L < L[1];
Condition2 = Ticks > Ticks[1] and Range < Range[1] and H > H[1];

If Condition1 then begin
OffsetBottom = OffsetBottom+OffsetInput;
Value1 = Text_New(D,T,L-OffsetBottom,"Stop");
Value2 = Text_SetColor(Value1,TextColor);
Value3 = Text_SetStyle(Value1,2,2);
If StopAlert = True then begin
Alert("Stopping Volume Low");
End;
End;
If Condition2 then begin
OffsetTop = OffsetTop+OffsetInput;
Value1 = Text_New(D,T,H+OffsetTop,"Stop");
Value2 = Text_SetColor(Value1,TextColor);
Value3 = Text_SetStyle(Value1,2,2);
If StopAlert = True then begin
Alert("Stopping Volume High");


RJay

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  #49 (permalink)
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The stopping volume in VSA indicator for NT works quite well.. only problem is that indicator is meant for use on time or tick based bars, not constant bars like range, renko, point-o, etc..

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  #50 (permalink)
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sefstrat View Post
The stopping volume in VSA indicator for NT works quite well.. only problem is that indicator is meant for use on time or tick based bars, not constant bars like range, renko, point-o, etc..

sefstrat,

The only important lines of code are

Condition1 = Ticks > Ticks[1] and Range < Range[1] and L < L[1];
Condition2 = Ticks > Ticks[1] and Range < Range[1] and H > H[1];

All this is if current bar is inside previous bar with greater vol,ticks,whatever.

Resistance to continuation of market movement in the same direction is being encountered.

This can be adapted to any chart type.

RJay

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