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How to use volume in your trading


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How to use volume in your trading

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  #1 (permalink)
 cunparis 
Paris, France
 
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Update Nov 24 2010: This thread was based on the Better Volume indicator from eminiwatch. I no longer use this indicator, instead I use my own version of his new indicator Better Pro Am. But that's just a small part of my trading, see this post (near the end of this thread) for an example of how I'm using "vertical" volume. There are other elements in this thread that you mind find interesting, for example VSA.

It took me a long time before I learned to use volume (and I'm still learning). But once you learn the basics about volume you won't be able to trade without it. Before I'd look at price only. Now I give at least as much attention to volume as I do price, and most often even more attention.

I don't want to come across as an expert in volume, I'm definitely not! I'm still learning myself. I just want to get some discussion going so we can all learn together.

To get started, this page is required reading:

- The Better Volume Indicator … My Secret to Analyzing Volume

You'll learn a lot just from reading this page. You don't have to use his indicator (although if you use Tradestation I highly recommend it), just try to grasp the concepts. His indicator doesn't pick up everything up so it's good to understand how it works so that you can do it yourself just by glancing at the volume charts.

I also highly recommend this book, which goes into much more detail:

- "Master the Markets" by Tom Williams. Amazon.com: Master the Markets: Tom Williams: Books

I found a PDF online, it's not available from amazon. He's pushing his software but don't let that put you off. The book is excellent, in my opinion the best book on volume there is. I do not have his software, but I have coded up some of the signals he has with Tradestation. For example he has a "no demand" pattern. On my charts my indicator prints it automatically.

Once you've read the Better Volume page above, I invite you to post a chart (any market, any timeframe) and we'll see if we can apply what we've learned. Specifically we'll be looking for:

- deciding if volume is buying volume or selling volume. Which reminds me, a year or so ago I demo'd an indicator which labeled volume as buying or selling. I didn't understand it so I asked about it in another forum. I was told there was no such thing, that for every buyer there is a seller, etc. So I stopped playing with the indicator. Big mistake. They were wrong. And now I'm writing my own volume indicators.

- identifying amateur traders by their low volume. It's usually best to fade these guys.

- identify the pros by their high volume. They can stop an advance and turn price in their direction. Think of them as the big bully who rules the playground. It's better to be alongside them rather than getting kicked around.

So let's go! Read the Better Volume page (and if you have time, the book), post a chart, and let's see what we can find.

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  #2 (permalink)
 GarryM 
Tucson AZ
 
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CUNPARIS,

I am just starting to use the Better Volume Indicator from Barry Taylor. Some direction is needed, it seems that sometimes the signals/ color bars work but at other times they do not, so I am a little confused.

It is great that someone is starting an Understanding Volume thread, this is one of my weaknesses that I am working on.

Last fall, I was able to spend 4 days with Tom Williams and his lady friend at a training seminar (about 30 attended), it followed the Best of Wyckoff conference in SF. Tom is now 80, with failing eye sight, but still taught a few hours each day.
During this week Hank Pruden presented Tom with a lifetime achievement award from Golden Gate University.
Back to business, in reference to Tom's book Master the Markets it is very good. However, Tom says that his first book The undeclared secrets that drive the stock market 1993, is better. The Master the Markets book is more geared to the TraderGuider software. I personally find Tom's first book is superior. Here is a link How the Stock Market Really Works

Garry

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  #3 (permalink)
 cunparis 
Paris, France
 
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GarryM View Post
CUNPARIS,

I am just starting to use the Better Volume Indicator from Barry Taylor. Some direction is needed, it seems that sometimes the signals/ color bars work but at other times they do not, so I am a little confused.

It is great that someone is starting an Understanding Volume thread, this is one of my weaknesses that I am working on.

Last fall, I was able to spend 4 days with Tom Williams and his lady friend at a training seminar (about 30 attended), it followed the Best of Wyckoff conference in SF. Tom is now 80, with failing eye sight, but still taught a few hours each day.
During this week Hank Pruden presented Tom with a lifetime achievement award from Golden Gate University.
Back to business, in reference to Tom's book Master the Markets it is very good. However, Tom says that his first book The undeclared secrets that drive the stock market 1993, is better. The Master the Markets book is more geared to the TraderGuider software. I personally find Tom's first book is superior. Here is a link How the Stock Market Really Works

Garry

Hi Gary, glad to have you in the thread. I'm just starting your price action thread. Having the two is going to be really good because when we combine them it'll really make a difference in our trading.

Your observation about Better Volume is correct, and one day I want to see if I can improve it but I've been so busy with other things. This is why I say one must understand how to do it yourself just by looking at a bar, so we're not dependent on the indicator. Many are against indicators, that they tell you what the chart is already telling you (if you know how to look). But this is an example of an indicator that may tell you what you already know but it saves you a lot of time. Instead of analyzing 100 bars you just look for the colors. But at turning points I go bar-by-bar and analyze it myself, cause better volume can't correctly label everything 100%.

That was great information about Tom Williams. I find it amazing that out of all the trading books out there, he is the only one who really told the story of how the market is a big scam and people get suckered into bad trades. He tells it like it is! And once you learn his volume method (VSA) it becomes so obvious.

I've read Master the Markets twice and I still don't get it all 100%. It's a lot to think about. So instead of reading it a 3rd time as I planned to do I'll read his first book. Thanks for the recommendation. I liked him talking about trader guider because that gave me lots of ideas to program into tradestation.

BTW you mention Pruden, his book is excellent and I highly recommend it, although it's not required for this thread. The analogy with the fashion industry is worth the price of the book alone.

https://www.amazon.com/dp/0470050632?tag=advanwebamazocom&camp=213381&creative=390973&linkCode=as4&creativeASIN=0470050632&adid=0N5C98S83K4MDV9YMAM7&


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  #4 (permalink)
 GarryM 
Tucson AZ
 
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CUNPARIS,

Another person that really explains how the stock market is a scam is Edwin Lefevre, he is the author of Reminiscences of a Stock Operator. This book chronicles the trading life of Jesse Livermore. This is especially good for the newer traders.

It seems that I have learned much more from the traders who traded before 1950, it seems that everyone in the last 30 years is trying to sell something. It is only those recent traders who have studied the ways of the pre 1950 guys (Livermore, Wycoff, Graham) that offer me great value today.

If you remind me in a few weeks, I will share some of Tom's trading rules. I need to dig them out and compile the major thoughts, I have several pages of notes from his teachings.

One of the things that Hank Pruden (Hank) drives home in his lectures is that trading is always a two step dance with the market. (Action-Test, Action-Test, Action-Test) Hank is also a big Point and Figure guy for long term market projections.

If you are interested in Hank (he is awesome) check out: Henry Pruden - Education in Technical Analysis and Trading you can also buy his book on his site.

Cunparis, you are correct, threads on price action & volume should help us all. Jesse Livermore made 100's of millions with no computers or indicators, imagine that.

G

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 Jeff Castille 
Northern California
 
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Hey cunparis,

Great video on Better Volume. I'm wondering if you think the Volume Graph indicator on the download page is a suitable proxy for the Better Volume indicator or if you think it would be better just to cough up the $67.00 for the Ninja version?

Also, I'm curious if you use the volume paintbar study on your chart instead of Ecobars or other paintbar study?

Thanks, Jeff

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 cory 
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cunparis View Post
..

BTW you mention Pruden, his book is excellent and I highly recommend it, although it's not required for this thread. The analogy with the fashion industry is worth the price of the book alone.

..]

check out Ted Warren book
Amazon.com: How to Make the Stock Market Make Money for You (9781568493572): Ted Warren: Books

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 cunparis 
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Jeff Castille View Post
Hey cunparis,

Great video on Better Volume. I'm wondering if you think the Volume Graph indicator on the download page is a suitable proxy for the Better Volume indicator or if you think it would be better just to cough up the $67.00 for the Ninja version?

Also, I'm curious if you use the volume paintbar study on your chart instead of Ecobars or other paintbar study?

Thanks, Jeff

I couldn't trade without Better Volume. Well technically I could but it'll be less efficient. I'll be giving lots of examples in the volume thread but Barry already has a lot on his site too. I've made good money using his indicators so to me it's well worth the cost.

I use the better volume with all colors and the better volume paintbar set to show only high volume churn and low volume bars. These show professionals and amateurs, which is very useful for turning points. I don't use climax bars because to extra colors makes the chart look like a rainbow and harder to read, and I can see the climax bars in the volume panel. I use them for tradestation, I haven't purchased the ninjatrader version since I use tradestation mainly.

To be honest I really don't find eco bars useful. It just seems obvious. When there is a one or two bar pullback the color gets lighter. If it continues then it turns yellow. If it continues enough it turns opposite color. Just seems obvious to me.

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 cunparis 
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Jeff Castille View Post
Hey cunparis,

Great video on Better Volume. I'm wondering if you think the Volume Graph indicator on the download page is a suitable proxy for the Better Volume indicator

I just looked up the indicator you're referring to and it seems to color the volume up or down. I think it's not even close to better volume. Better volume uses the range of the bar and also whether it was buying or selling volume.

I just got an idea: I only really use the yellow (lowest volume of the last x bars) and high volume churn. The HVC basically picks out bars with high volume and low range. I bet we could write a simple indicator that could highly just these two conditions. The source to better volume is available if anyone wants to try.

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 RJay 
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cunparis View Post
I just looked up the indicator you're referring to and it seems to color the volume up or down. I think it's not even close to better volume. Better volume uses the range of the bar and also whether it was buying or selling volume.

I just got an idea: I only really use the yellow (lowest volume of the last x bars) and high volume churn. The HVC basically picks out bars with high volume and low range. I bet we could write a simple indicator that could highly just these two conditions. The source to better volume is available if anyone wants to try.

cunparis,

No need to write new code. just set to "transparent color" anything you don't want to see.

RJay

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 cunparis 
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RJay View Post
cunparis,

No need to write new code. just set to "transparent color" anything you don't want to see.

RJay

What I meant was that we could make our own volume indicator and have the source code. Then we could add to it, like patterns from the Master the Markets book. The part of the Better Volume that prevented me from porting it to NT turns out to be the part that I don't use frequently.

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