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

  #541 (permalink)
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I have a question for you VSA experts.

So if I'm looking at the per-bar delta on an exhaustion, wide spread, high volume bar, is it true that I should be seeing sell volume on a down move, and buy volume on an up move?

From my understanding of "strength in down bars" and "weakness in up bars", it's because the aggressive market-order buyers (in an up bar) are being exhausted and that passive, limit-order sellers are absorbing that volume. Is my fundamental understanding correct?

In the third arrow I've drawn, it seems the sellers have started to enter, and this may be termed a "churn bar" but I'm no expert. What do you think?

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  #542 (permalink)
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josh View Post
I have a question for you VSA experts.

So if I'm looking at the per-bar delta on an exhaustion, wide spread, high volume bar, is it true that I should be seeing sell volume on a down move, and buy volume on an up move?

From my understanding of "strength in down bars" and "weakness in up bars", it's because the aggressive market-order buyers (in an up bar) are being exhausted and that passive, limit-order sellers are absorbing that volume. Is my fundamental understanding correct?

In the third arrow I've drawn, it seems the sellers have started to enter, and this may be termed a "churn bar" but I'm no expert. What do you think?

A wide spread, high volume bar shows that one side - either the bulls or the bears - are clearly in control, and you should see buy volume on an up move and sell volume on a down move. These bars are either breakout, continuation or climax bars, which means that they either start a move, show that a move is continued or that they lead to exhaustion to a move. Note the similarity with breakway, continuation and exhaustion gaps. The meaning is identical.

Your first arrow is a continuation bar.

Your second arrow is a climax bar.

Your third arrow is a spinning top just where the prior high was tested. It is a narrow range high volume bar and therefore qualifies as a churn bar. The second spinning top confirms it, so it would be a nice short.

Weakness in up bars will show, when the ranges narrows down. There are two types of tops.

(a) the spike top:

This is a climax bar, followed by a churn bar. The bulls have raced too high, while the bears were lying in ambush. This is the situation, where passive sellers absorb all the buying of the bulls. Typically the passive sellers are higher time frame traders, which do not share the views of the shorter term traders.

(b) the wedge top:

This a gradual slow down of the movement of the bulls. There is no climax or further ambition. Volume dries up until the last bull thinks that he has gone too far. You won't get any climax or churn bars in this type of market. The wedge can extend for a longer time than expected.

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  #543 (permalink)
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Thanks so much FT! In the chart I posted, I take it this is more of the climax type of top, correct? Is there an example you can readily find that is not a climax top or bottom? I recall seeing tops and bottoms that don't have climactic volume, but perhaps one that you think is a good example?

- Do you feel that volume from the currency futues (6E, 6J, etc) is accurate enough to use for VSA-type analysis?

- Is it sound logic to look for the following, as in the chart: large delta (positive in an up move) on the climax bar, and on a final 2nd or 3rd push exhaustion (the spinner in my chart) either an almost neutral delta or a slightly negative delta? The logic would be that the delta is higher on the continuation and climax bars as aggressive buyers are absorbed by passive sellers, whereas in the beginning stages of the reversal itself, the sellers themselves become more aggressive and thus have the strength to push price down.

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  #544 (permalink)
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Near the end of the day today, I "mind traded" this (not confident enough with this stuff yet to really trade it). The reversal bar which dipped below the even level, I presume to probe for interested sellers, was a good signal to go long, IMO, and it was on higher volume, which was a plus. Now, the following two bars (at the close) were high volume as expected, but they were both up closes and had negative delta. As the bars were forming, in my "mental trade" this gave me the confidence to stay in the trade, as this indicated to me that the passive buyers absorbed even more aggressive sellers, and with aggressive buyers pushing it up, this seemed to be a bullish sign. Again, how's my logic here? Sometimes you think something makes sense until someone enlightens you and makes you realize how stupid the idea was :-) Just testing myself here against your experience!

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How to use volume in your trading-cl1.png   How to use volume in your trading-cl2.png   How to use volume in your trading-cl3.png  
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  #545 (permalink)
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josh View Post
Thanks so much FT! In the chart I posted, I take it this is more of the climax type of top, correct? Is there an example you can readily find that is not a climax top or bottom? I recall seeing tops and bottoms that don't have climactic volume, but perhaps one that you think is a good example?

- Do you feel that volume from the currency futues (6E, 6J, etc) is accurate enough to use for VSA-type analysis?

- Is it sound logic to look for the following, as in the chart: large delta (positive in an up move) on the climax bar, and on a final 2nd or 3rd push exhaustion (the spinner in my chart) either an almost neutral delta or a slightly negative delta? The logic would be that the delta is higher on the continuation and climax bars as aggressive buyers are absorbed by passive sellers, whereas in the beginning stages of the reversal itself, the sellers themselves become more aggressive and thus have the strength to push price down.

Below is a daily chart for TF. You can see that volume is drying up, when price approaches the top. Not really excitement.

The volume from currency futures can be used, of course. For FOREX you could use tick volume instead.

I am not too much involved with deltas.

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  #546 (permalink)
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josh View Post
Near the end of the day today, I "mind traded" this (not confident enough with this stuff yet to really trade it). The reversal bar which dipped below the even level, I presume to probe for interested sellers, was a good signal to go long, IMO, and it was on higher volume, which was a plus. Now, the following two bars (at the close) were high volume as expected, but they were both up closes and had negative delta. As the bars were forming, in my "mental trade" this gave me the confidence to stay in the trade, as this indicated to me that the passive buyers absorbed even more aggressive sellers, and with aggressive buyers pushing it up, this seemed to be a bullish sign. Again, how's my logic here? Sometimes you think something makes sense until someone enlightens you and makes you realize how stupid the idea was :-) Just testing myself here against your experience!

Every trading day the floor session for CL closes at 2:30 PM EST. This means that you will see a high volume bar every day at 2:30 PM EST.

How can you use that information for your trading?

Not at all.

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  #547 (permalink)
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Below is a daily chart for TF. You can see that volume is drying up, when price approaches the top. Not really excitement.

The volume from currency futures can be used, of course. For FOREX you could use tick volume instead.

I am not too much involved with deltas.

Cool, very good stuff indeed. That climax churn lonely volume bar there really stands out...

If you were long after this bar, would you get nervous that the next 3 bars had decreasing volume? Would that make you question the long position?

Next it looks like a no supply bar though I suppose, so maybe that and the following reversal bar on increased volume would give you confidence to hold a long position?

Finally, two bars later, 3/25, would you see this as the first sign of weakness? Increased volume at a resistance area, with a close below the middle of the bar?

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  #548 (permalink)
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Fat Tails View Post
Every trading day the floor session for CL closes at 2:30 PM EST. This means that you will see a high volume bar every day at 2:30 PM EST.

How can you use that information for your trading?

Not at all.

True, I was placing more emphasis on the negative delta despite the up closes... but as you said, you don't pay much attention to delta so enough said :-)

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  #549 (permalink)
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josh View Post
Cool, very good stuff indeed. That climax churn lonely volume bar there really stands out...

If you were long after this bar, would you get nervous that the next 3 bars had decreasing volume? Would that make you question the long position?

Next it looks like a no supply bar though I suppose, so maybe that and the following reversal bar on increased volume would give you confidence to hold a long position?

Finally, two bars later, 3/25, would you see this as the first sign of weakness? Increased volume at a resistance area, with a close below the middle of the bar?

Actually I do not think that volume tells you a lot. The only exception are outstanding high volume events. If I see those bars on March 14, 15 and 16 - that tells me something. That is either a breakout or a reversal. When price moved up, it came out as a reversal.

I would have also noticed the churn bar on March 9. It was an extremely narrow range on high volume. Such days typically precede breakouts. The next day became violent because the trapped longs had to cover.

The volume on March 25 has no meaning for me. I do not pay attention to any bars which are not climax or churn bars.

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  #550 (permalink)
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Fat Tails View Post
I would have also noticed the churn bar on March 9. It was an extremely narrow range on high volume. Such days typically precede breakouts. The next day became violent because the trapped longs had to cover.

March 9 volume looks to be equal or lowest volume of past 12 days .. why do you say it's a high volume bar? You mean relative to the spread perhaps?

As for currency futures, do you think this volume is really representative of the global interbank forex system? I mean, it might be close, but how can a few hundred thousand contracts from the CME be a good proxy? It may work fine, I just don't see how they could be so closely correlated as to be accurate enough to use in VSA.

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