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Catching Big Waves - a trader's journal of surfing the the markets
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Catching Big Waves - a trader's journal of surfing the the markets

  #1701 (permalink)
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The short on volume earlier would have been the best trade of the day.


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And, the market did wind up somewhat rangebound.


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I picked at it here and there, net 46 ticks, still seeing if it might have the ability to breakout going into the close. But today had price action that resembled the ES, and without any real motion or real volume, I feel very compromised in my decision making.


Last edited by GaryD; March 19th, 2012 at 02:46 PM. Reason: typos
 
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Gary, I had hypothesized a range bound day for ES today -- no news of significance, an open inside yesterday's range, weak volume overnight that had tested below, and above, Friday's range, and after the first hour or so, about 75% of 20 day median volume at that point in the day. I was way off but managed to pull a couple of shorts for a few points, and luckily after those I stopped as the real movers started paying up and we are now at 100% of relative volume, having a 12 handle range (which is, believe it or not, above median as well, yikes).

As you are "the man" at reading volume, I thought I would poll you and look for your comments or thoughts on the market's reaction to the heavy volume here. Not a situation to fade, namely IMO because the market continues higher. I thought that I and others as well might benefit from your thoughts. My ES 1m "pay attention" volume number is 20K, much like your 1K-2K number for CL.

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As a followup, here is a profile for today (RTH only).

While volume has been heavy as we move up, the fact remains that the "sell side" of this volume has not been heavily concentrated in one area. Basically, sellers are getting run over. If they held either of these top three boxed areas enough to build the volume there, then a case could be made for a wall of resistance. Likewise, even a light build of volume followed by a move back down could be justification for a short. However, each time the sellers step up, the market moves right on past, as more are not willing to stand in the way, and the buying pressure dominates.

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Last edited by josh; March 19th, 2012 at 03:15 PM.
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josh View Post
Gary, I had hypothesized a range bound day for ES today -- no news of significance, an open inside yesterday's range, weak volume overnight that had tested below, and above, Friday's range, and after the first hour or so, about 75% of 20 day median volume at that point in the day. I was way off but managed to pull a couple of shorts for a few points, and luckily after those I stopped as the real movers started paying up and we are now at 100% of relative volume, having a 12 handle range (which is, believe it or not, above median as well, yikes).

As you are "the man" at reading volume, I thought I would poll you and look for your comments or thoughts on the market's reaction to the heavy volume here. Not a situation to fade, namely IMO because the market continues higher. I thought that I and others as well might benefit from your thoughts. My ES 1m "pay attention" volume number is 20K, much like your 1K-2K number for CL.



Thanks Josh, and I would try to help if I thought I could, but my volume interpretation is really most accurate in CL, and that is just from years of staring at it. ES is similar, but the forces are different there, and I had many times where I would have sworn we just saw turning volume, and then I got stopped out in ES. I have tried 6E, TF, GC, YM, all with no real feeling of having an edge, other than in hindsight.

As I type this CL is finally headed higher, but even though the same selling strength re-appeared above 108.50, I would not short now for anything. Time of day and perception is against me. But this morning, same appearance on a chart, different conditions, I almost did sell that. And possibly I should have.

But today I took only long trades. Not a single short. I got furstrated with the lack of motion and wimpy volume, so I just grabbed a few ticks here and there, mostly "low fruit". many of my entries today I do not even count as a "trade", but as indecision where I may have accidently picked up $20.00.

Summary (all long)

-4
+9
-13
+10
+3
-10
+2
+11
+20
+1
+12
+4
-5
+1
+5
+4

Net 50, but crappy trading. Just never really felt it today.

 
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OK Gary, let me phrase it another way to make it more general, extracting out the instrument: can you briefly comment on the role of volume in a market? I've read some of your stuff on this before but it has been a long time since you went there, and I'm wondering if you wouldn't mind sharing your general "theorem" on volume's role in the marketplace. In other words, why use volume...? I don't need to be convinced, as I'm lost without it, but I just haven't heard you talk about it in a while and I'd love your current perspective. If you don't have time I understand, but when you do it would make for good conversation I think, unless you feel it is simply rehashing the old...

By the way, I understand that sometimes these things simply can't be articulated in words, as experience and feel for the market become paramount. But still behind those feelings and experience is some fundamental theorem for why one watches a particular market metric, be it volume, breadth, or something else.


Last edited by josh; March 19th, 2012 at 03:44 PM.
 
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I had expected a range bound day, and tried to talk myself into trading it as such, but there is still some weak spot in me that keeps me from liking those conditions. I'm going to add a chart image, but it is on another computer so I will have to edit this one. What it will show is intertwined moving averages, and I got beat up enough times trying to guess the correct direction that I may be permanently scarred.

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I have a pit bull mix that my wife got from the pound. She was about 6 months when we got her, and something happened to her during that period before she came to live with us that now, 5 years later, causes her to be afraid of a lot of things. Sweetest dog I have ever known though, and I make a regular effort to rehabiltate her; we go to the park, to the open markets, walk downtown. She is better, much better, but I do not think I will ever get those early emotional scars out of her completely. And that may be the same for me and trading channels. I took tiny bursts here and there, but kept waiting for something more significant to say it was ok to hold.

 
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Quick question...

Donchian Channels,

Looks like you have 3 different Donchian Channels...

Do you countertrend on tests of all 3 or are you using these 'with' trend?

I am strictly a w/higher timeframe trend trades trader (1st or 2nd pullback to my sweet spot OR pullback and/or breakout after momentum breakout) w/higher timeframe trend confirmation.

I saw a webinar awhile ago from a guy that used 2 or 3 donchian channels to 'fade' the touches and rejections (if all 3 were touching price).

peace

Hedvig

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josh View Post
OK Gary, let me phrase it another way to make it more general, extracting out the instrument: can you briefly comment on the role of volume in a market? I've read some of your stuff on this before but it has been a long time since you went there, and I'm wondering if you wouldn't mind sharing your general "theorem" on volume's role in the marketplace. In other words, why use volume...? I don't need to be convinced, as I'm lost without it, but I just haven't heard you talk about it in a while and I'd love your current perspective. If you don't have time I understand, but when you do it would make for good conversation I think, unless you feel it is simply rehashing the old...

By the way, I understand that sometimes these things simply can't be articulated in words, as experience and feel for the market become paramount. But still behind those feelings and experience is some fundamental theorem for why one watches a particular market metric, be it volume, breadth, or something else.


I'll try to remember to get into it later and show more detail, but in general;

Inertia is something that I believe exists in the markets. Price starts to move in a direction, and unless some greater force acts on that to change it, it will continue in that direction. I have seen price "float" to what seemed like infinity when there was nothing to stop it. Ever see a day where the market is open but most traders are on holiday? No volume, price can drift anywhere. Or, some times in after hours markets.

I remember listening to a morning prep discussion at ATW, referring to a CL chart, and having Jerry Simmons say something like "I know resistance seems like it is a long way up there, but there really isn't anything that significant between here and there". The distance may have been a couple dollars. Anyway, what was amazing to me, it went up there without much trouble. It was no real race to the top, but it just kind of meandered it's way up a couple dollars. And THEN it tried to turn, at resistance of course. I was amazed, impressed, and felt foolish for attempting to short it more than once as it seemed it was way overdue for a pullback.

WE move price. Maybe not me and you, unless you happen to be managing a few billion, but collectively we are volume. (Well, us and buy/sell stops. Different analysis altogether). So, believeing in inertia, and with me wanting to have a close backstop, I prefer to watch for areas of heavy volume. It makes me feel like I have a defensive line protecting my stop loss.

I have learned to not try to guess where support and resistance will be to enter a trade. Obviously, I do guess where it might be ahead of time, but when it gets there I go straight for the volume chart, and the colored lines of a "zone" become somewhat negotiable during that period.

It's as if the fib lines, prior DPTLs, LSPs, trendlines...whatever I think I am interested in watching (I have referred to it as "approaching an area of interest"), those things are just there waiting for confirmation of volume, and if volume does not come, those lines were basically meaningless.

Now, volume alone only says you are possibly in the right area. But markets make major decisions at zones, and so just seeeing a spike does not confirm a turn. Volume also propels price through zones. Reading whether volume means continuation or reversal, that could take days to talk about. I know that by being wrong a thousand times, eventually it sinks in.

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researcher247 View Post
Donchian Channels,

Looks like you have 3 different Donchian Channels...

Do you countertrend on tests of all 3 or are you using these 'with' trend?

I am strictly a w/higher timeframe trend trades trader (1st or 2nd pullback to my sweet spot OR pullback and/or breakout after momentum breakout) w/higher timeframe trend confirmation.

I saw a webinar awhile ago from a guy that used 2 or 3 donchian channels to 'fade' the touches and rejections (if all 3 were touching price).

peace

Hedvig


Mostly with the trend, rarely against. No, that is not correct. If I am going to fade it has nothing to do with DCs.


I have not found one to test any better, but I like the trails they leave. I like to see one lift off the other. They give a visual of an expectation.

 
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josh View Post
As a followup, here is a profile for today (RTH only).

While volume has been heavy as we move up, the fact remains that the "sell side" of this volume has not been heavily concentrated in one area. Basically, sellers are getting run over. If they held either of these top three boxed areas enough to build the volume there, then a case could be made for a wall of resistance. Likewise, even a light build of volume followed by a move back down could be justification for a short. However, each time the sellers step up, the market moves right on past, as more are not willing to stand in the way, and the buying pressure dominates.


I have played with side-mounted histograms for volume zones, and I do see a lot of traders who I would think are "trained professionals" using that style of volume analysis on their charts (that, and ladder-type). Maybe I am doing it wrong, or just never took enough time to let those sink in, but I don't like either one of those for reading action. The ladders are kind of cool, and give real time information, but I watched them for about a month and they made me feel somewhat hypnotized. But the horizontal histogram seemed to be old news, that is where volume was. But, is it still there? Did it move the market, and how fast, how far? I may be kidding myself, but I believe I can tell enough to give me a slight advantage just from a simple volume indicator on a short time frame.

I tried volume moving averages, minimum volume thresholds as triggers. I have tried many different indicators that separate volume into buy/sell in several different ways. I have run 20 second, 30 second, 90 second, 2 minute, 3 minute, 5 minute charts. I have tried to backtest most of those indicators and time periods with no decisive results. What I know to be true though, whether I can prove it scientifically or not, is that my best entries tend to coincide with reading volume.

Some days I want to take a trade, but can't because I make myself wait for something to show up. But that is a learned behavior. I have no idea how many times in the past I became impatient, and took an entry, a guess really, got stopped out... THEN later saw the volume bar I had lacked the patience to wait for, and took the trade again, only to get back to breakeven. Spinning wheels.

I wasted great trades by taking a so-so trades first. And then I have a tendency to want to not be in the red, so instead of having faith in the correct entries and riding them for awhile, I only found relief by getting me back to where I started.

I don't really do that so much today, as I have somewhat accepted that my wins will take care of my losses if I really pay attention to that. And, I have forced myself to let a trade go when I believe it is the right one. But I do very often grab 4-5 ticks when I feel it is "all clear" and my balance is red for the day.

If I were relying on volume alone today to choose a trade, the most impressive to me was actually the selling that took place at the top. It almost looked like no one wanted to short this market, but they were willing to lock in profits around 108.50. Yes, there were shorts in the market who got chased out the 2pm door, but no real buying conviction in this price range. I did not miss the fact that they were not able to blow tht top off the 108.75 pivot on the May contract (mentioned as 108.20 last night on the April contract). I don't doubt at this point that buyers are still looking for opportunity, but 108 seems like it is a bit pricey as of today. Of course, it the pivot does blow, 109 may seem cheap.

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