ES and NQ: Volume on the Bid and Ask

Discussion in 'Index Futures' started by demonet, Oct 29, 2003.

  1. demonet


    I have a question that maybe some of you could help me with. I recently started trading ES and am progressing to my satisfaction. Although I am comfortable with my current skill level and my progress, I still have some nagging questions.

    My question, as this thread would indicate, pertains to the respective volume of the inside bid/ask in TOS. Though, I have read other threads here on tape reading, I still am a bit unclear.

    I understand the rudimentary level relationship between price and volume, i.e. price action and volume interact to predict the likelihood of a current price move's duration. As an analogy, volume is the motor which gives the movement to price and increases price strength....a price move up or down together with higher than normal volume would indicate the move has strength and may continue. This because investors are showing conviction behind increasing levels of buying or selling. So far, so good....

    But do the various volumes shown in TOS -- or in the "market pressure" indicator in Buttontrader -- mean anything more than there is a bullish or bearish pull toward the side with the higher volume, e.g. if the bid volume is slightly higher then the ask volume, the current price trend has a bullish bias?

    Buttontrader spends a lot of lines of code showing the user a graphical representation of the volume (either cumulative or on average) of the 5 best bids and asks, and so I was wondering if all these bells and whistles were telling me something I was missing....

  2. I hope a lot of people fill in this thread.

    Think about the other side of the coin too. The analogy of volume as a set of brakes.

    With the motor and brakes you can go anywhere. You will see that at least 10 people here really nailed today. They are keenly aware of the two roles volume plays. The T&S is extremely helpful in this regard.

    There was a really great thread on this a while back and the moderator shut the thread down to help eveyone out.

    The T&S tell you who is in charge and the volume acts as the brakes and motor for getting there. Distance is the measure of profits.
  3. demonet


    Grob: Thank you for your reply; it is very much appreciated

    Aren't you referring to sales volume? In contrast (I think) bid and ask volume represent standing unfilled offers to buy and sell at various prices with no takers (at least at that precise moment).

    Buttontrader graphically shows the strength of each of the 5 best bids and 5 best asks. I understand how supply and demand dictate that the current price trend will move toward the price of the bid or ask -- whichever is greater in number -- but that is the only affect I can see it having.

    I sense however, from your response, that there is more to it....
  4. I think he is talking about the decrease of volume signaling reversal. PV relation

    I can tell you what I look at in tape reading- which is a recent thing for me. First off I use it only durring times that I consider inflection points based on my trading methodology. I am not familiar with button trader but I try to look at the size and momentum of the market depth. The way I look at it is this, as a move losses momentum, there is frequently a level that is fought over and goes back and forth between the bid side- ask side. I believe Jack Hershey calls this a spinner. The picture I have is a rabit; a smaller (in contract size)level that tends to follow the market movement. As a move looses steam it can't 'win' the last battle and usualy volume stalls here, particularly if it is in a spike. Then size builds against the trend and the level against the previous movement starts to get eaten. This is watching the momentum change, the A-D switch a number of things happen.

    I think of it like this. One side has size when this happens and one side has momentum (it just switched). The size is static- the momentum- force is dynamic and it eats through the size untill it gets extinguished.

    I find that in situations that I have good mental pictures of I can use this to get in 2 ticks from the bottom-top. An example of this is an odd harmonic rocket ending in a failure to traverse, after a second point 3- (for those who speak Hershey).

    I am a trader who is actively in the process of refining my methodology, and my thoughts should be taken in that light. The prorata volume tends to work in tandum. I think it has been difficult of late due to a prevelence of even harmonics. I would be curious if anyone has thought of this in a simmilar manner. I would very much enjoy anyones constructive thoughts.
  5. demonet


    Thanks...that is a good visual of what is happening and it helps to understand how the bid and ask volume can affect the trend.

    In fact, I read your response late last night and this morning (10/30), I thought about your reply. I was trading ES and was fading the big gap up (from the positive GDP announcement at 8:30est) and thought about what you said while watching the "battle" during the creep down. Several times the ask showed higher volume and the trend stalled, but then after anywhere from a few ticks to one to two 1m bars, the bid volume increased and "ate up" (as you say) the ask volume and the fall continued.

    JH might not have recommended I actually make that trade since I am somewhat a newbie with his methodology. And since the market really had not "synched" with cash yet, and there was no confirmed fast/rocket trend, I really should have stayed out for another few 5m bars. However, after the first 5m bar, the indcators showed a strong downtrend beginning , so I figured since today was on an open with a 7 pt. gap up, maybe I could short and make a few pts on the fill.

    I was lucky and got out with 4. I jumped out about 1-2 points early getting spooked on the 1m which showed 3 or 4 small green candles and weaker stochs -- this plus the fact that I just wanted to keep some profits and not get greedy.

    Lucky maybe (with such a positive announcement, I imagine price might have very easily continued upwards) but I am happy with it.

    BTW, did anyone catch any points on the pre-open increase on the GDP announcement?