Also been my experience. Other than monitoring overall volume averages, a change in volume one way or the other has never had an impact on my trading, or on any one of thousands of systems and variations that I've tested or traded. My feeling is that a small volume buyer, who wants to get into or out of the trade and is willing to pay up or sell out, can have a greater impact on price movement than heavy traders fighting over 10ths and keeping the stock in a trading range. Volume seldom if ever appears to be indicative of a change in direction, or in trader/investor interest or lack thereof. I suspect that the many authors and gurus who point to volume as an indicator have, overall, made more money from volume than those attempting to trade on it.
There is no doubt that the bid and ask can change without any trades occurring when people pull their orders but the Last Price cannot change without a trade occurring. There is no doubt there is a great deal of head faking done on the bid and ask. There is no doubt the market can go down or up on low volume and go nowhere on high volume. The permutations are endless. If you wish to pay no attention to volume you are perfectly free to do so. No one is twisting your arm. I know for a fact that there are many times that volume or the lack thereof is a very good leading indicator. I have proven it to myself and that is all that really matters to me.
I hope you don't think I was trying to imply not to pay attention to volume, I've given up on recommendations No way, I was simply saying that bids can be pulled & by doing so majors can influence other entities to start initiating stops, resulting in build up of momentum & volume increase. So at times price can lead volume & vice versa. Correct?
What about the idea that if event 'a' preceeds event 'b', then it is not necessarily true that event 'b' was caused by event 'a'?
My experience is that those that had tried to use volume as an indicator of price direction where trying to use it as a reversal indicator instead of as a change in supply/demand. Simply, lots of traders around here saying volume indicates a change in price direction and lots of traders around here saying volume doesn't indicate price direction. I say until you guys post chart examples I think you guys are talking about something different and assuming the other guy is talking about the same thing. With that said, as I explained elsewhere here at ET with chart examples... Volume Analysis is dependent upon Volatility Analysis if someone intends on using volume as part of their trading plan. Mark
IMHO, if one really wants to understand price and volume r/s better, learn to read Level II and TS and look at charts at the same time. Don't only look at 1 particular stock, but look at the stock movement in relation to similar stocks and indices/futures also. Do it on an intraday basis. Then also learn to read volume on a daily basis.
I wouldn't say he was missing half the picture. Rather he didn't subscribe to much of the nonsense that Hershey spouts. In any case, anyone who has any questions on the subject can simply go to t2w.com and ask him. LC
Many moons and several draw-downs ago I decided that every trading answer was a question made and not the other way around......... there are three types of decisions; correct decisions incorrect decisions indecisions does volatility HAVE to accompany ? NO! Does volume activity have to diverge to be giving a signal of action ? NO .........is the lack of convergence a signal ? Yes......often A non-convergence is a what signal? Continuation.......... ("what you doing"? ......."waiting for divergences"......."ok, the price has travelled 60 ticks, how long have you been waiting for the divergence?"......."erm......about 60ticks or so") the fluctuation in supply/demand does not, thus, impel or input a significant trend degree difference.......a continuance of the same degree trend movement is often missed because the trader is intensely focused on something other than the price story How many novices will sit staring at depth, various volatility gauges and volume measures for divergences signals when they have a clear continuity signal in the pattern? Everything is a relative and needs to be in context........ the price is the leader.......a market with no established price has thus no need for volume measure and volume measure or fluctuation then becomes a relative (immediate or other wise) interpretation.........as you say; this requires charts the question that so rarely is discussed is context and relativity of pattern movment which tells its own story........adjunct to that is volume make-up and volatility.........How many complaints have I seen recently about the lack of volatility yet the markets have provided me with ample bags of points........is that not more to do with not being in synch with what the market provides (at any given cycle) ? and altering the trading stragem and technique to better get the points?........maybe. Here I get back to my simple attitude that you find the question to the answer not the other way around.......an easy example is how to have ample enough buying supply for a price to fall which is counter to most text on the subject and certainly I know of many trader who have taken heavy hits from saying that too much supply must mean a price decline is due........no! .....not always......... The path of price is set and the print is the relief.......maybe........the impulse maybe seen in the pending and the story in the print........and like iceberg orders, volume is a fleeting matter until it, too, is printed........this brings me back to printed price which must lead.......does the whole community trade on volume or their sense of price value? .........If you say the answer is volume then our conversation is over.........if you say the answer is price then we have a story unfolding........interpretive story........speed plays a big part in this.......so is momentum of price change a bigger factor in the value or price movment, that is, can I infer that a (relative) increase in speed carries more weight than an increase in supply or demand (regardless of current price direction) over the price itself.......the immediate price movement? For me the answer is; no, not always.........the market does not allow me to state "never" the same way that I have never seen an empirical study that shows anything outside of price (itself) is the ultimate decider........ not on a continuous basis.......... I see, again, (in my opinion)........traders who take some womble hits from playing the congestion game........stops just behind clusters, just behind mass or size........yeah, we're really in the shark pool in this convo.........but at any level that play is on the cart, not the horse......there's not an empirical play at hand whereas in price the print is made........I see price printed and a sense of value is placed on that......it's a done deal.........again, a market, or traded instrument, may not exist with the initial demand but there has to be an initial agreement on price otherwise the demand of people waiting to buy those goods or instruments is a fleeting and secondary impel. ok.......got into some circular breathing on that one.........the point on this, for me, is that ignoring the price pattern story as it unfolds (regardless of the degree of trend you're trading) is dependant upon the agreement of price and thus is represented by the price movment first......... A bit like the guy who points into the sky and screams......look, look at the size of that........the crowd looks upto the sky and someone yells; there's nothing there, you numbnut..........oh, mate, you're the numbnut.......I'm talking about my finger! pattern/price reading is a real art........everything is adjunct to that everything comes in behind that no matter its priority as interpreted by the trader, certainly by me.......... I gotta hear the song before I'll agree to the dosh for the cd........the price is; time I gotta watch the tv promo before I sit and waste my hour........the price is; time No wonder, how many traders watch a 30 second split then decide what entrance for a probable multi-hour set-up is about to cost them........crikey I was once challenged to open my platform and empty a screen and have one instrument price signal for the whole day and explain, outloud, what was going on.......no chart, no indicia, no volume......just the price ...........initially I got strange flashbacks of the days BEFORE I took up trading when I was completely ignorant and naive and made some of my best equity trades.......wow........I was so patient..........then one day I got my first indicator.........buggah......... ........back to the price............amazing the story I started to see as I watched for several hours.......I watch price far more attentively since that exercise............I see price movment in a different way and when I go back to the chart I get the big Ah-ha! .........then I like to take a gander at the volume activity........yep, spot-on.......some phases will have me think how I would have interpreted the price activity differently had I been committed to volume interpretation.........I see how easy I could argue for the depth of volume view.........for me that's like listening to music with added echo, reverb and chorus........might make me think something different but aint changing the nature of the tune (if you thought I was gonna say the song remains the......ahem) ..........immediacy of price change occurs before immediacy of volume commitment......... price watching, exclusive of charts, is an exercise I think all traders would benefit from.........I liken the exercise to the footwork for a boxer.......the charts are the gloves but when you got dead feet........ Volume indicates something at every moment in the session but it remains secondary and interpretive to price......if everyone made a commitment via one contract (alone) to be long or short - in or out- that would merely highlight their agreement to their sense of the value of the price they see........ that price fluctuates and that volume fluctuates accordingly makes volume secondary to that essential tenet .........for me........ Again; volume indicates interruption to trend Again; volume indicates continuation to trend Again; volume indicates divergence/convergence to trend this is regardless of what size, of the degree of trend, being entered or exited..........the degree of trend is a specificity of itself I get back to the degree of trend because that's what calls for volume activity.......when we see a huge influx of price activity it is a confirmation of price by communal commitment........a self-fulfilling act.........yes, I can get into the leading, short-covering, that's the fuel for higher prices the same way we can get into, too many at the top of the parabola........that is not the focus......the focus is how did we get to that point........confirmation of price by volume, whether to scoff or purge, is a post-price-printed affair.......what's in the pending, level II is one-step removed .......volume activity may swing wildly while price remains static...........sure, rare enough......but this truth itself is proof, for me, that the price is first and (anything) everything else is secondary..........uber evidence for sure........still secondary to price volume activity may swing wildy while price remains static.......repeat after me.........do you, then, know where the price is about to go? This may question the validity of volatility as a persuasion for volume........and thus a persuasion for price. A tennis player sees the direction of the ball first........ before concluding that all the surrounding evidence; the opposing players height, speed, prowess, attitude, technical skill, equipment, coach, knowledge, clay court, hard court, sunny, raining, entourage, umpire, ball-boys, ball-girls, your balls, my balls........but seriously........at each strike of the ball the player has to know the one simple thing........direction from the opposing players racket.......speed, spin, lob, ground stroke yadda yadda yadda........come directly afterwards......... price is immediate, volume is secondary as there has never been any absolutes, outside of price, then maybe I am wrong........someone once said; that the winner is the one person in the argument who loses, as they gain, whereas, the winner of the argument gains nothing......... MM1
In Elder's book (is there more than one?) he describes Force Index. It is, if I remember correctly: ForceIndex = PriceChangeDuringInterval / VolumeDuringInterval If plotted, it should yield a histogram centered at zero. One thing it tells you is that little or no price change, even with huge volume is inconsequential.
good discussion, Lamon, here is a revived chart from db pic at bottom of page http://www.elitetrader.com/vb/showthread.php?s=&threadid=33766&perpage=6&pagenumber=6 the arrow is where signal generate and I am just at coarse level (level 1). Since DB was way ahead I guess Jack was criticized from fine level stand point.