Try looking at divergence instead in your data. You need to factor in market makers. They will take up available supply (Accumulation) and then distribute at a later time. The more they can accumulate at or around a specific price point, the more they profit. While it is true that there must be a counter party to every transaction, not every transaction is equal. Because there is always a market maker, it is never truly a free market for price to seek its natural level. So when you are looking to see the correlation between volume, turnover and price you need to keep an eye out for abnormal volume that does not move the market in the way it would be expected to. This is indicative of a market maker accumulating in preparation for moving the market up or down. Then they can distribute to traders who jump in after moves start and this is where the market maker profits. If your interested, have a read of : A complete guide to Volume Price Analysis. By Anne Coulling. She does a good job of explaining the concept and the games that are played to lead investors unknowingly into courses of action.
Sorry but I really really really think all of the above is completely and utterly bollox, stop reading bullshit books written by assholes that can't trade. Thankyou! Have a nice day!
Thank you for this post. I am studying the Coulling book now and applying it to my charts. I find her insights quite valuable.
After reading her book, it completely changed the path I was on. I still use her concepts but have gone a lot further afield in volume study. She does a great job of explaining what is happening so that it can be picked up easily by someone coming into the subject. Personally, its my view that volume is one of the key components that needs to be understood to see when and if the market will move. (I know others don't see it the same way.) With day trading, I've now gravitated towards watching for aggressive buyers/sellers entering at market on a foot print chart, coupled with LVN and looking for sequential declines on footprint chart coming into these levels/ prior days volume levels (POC/VAH/VAL). Have found cumulative delta - volume run on a very small time frame chart to be a great help in weeding out some more fake outs once in a trade. Also have cumulative delta - ticks running looking for divergence with price. It can work very well at times coming into a homework price level but its easy to get per-occupied with it and over use it for signals especially if its not backed up with it happening at or near a homework level. Still use price action but looking into volume was the missing key with price action. Reading Coulling's book was like a light switch got turned on. Another book that has done that for me is : Secrets of a pivot boss, by Franklin O. Ochoa. Every single trader should read and study this book in detail. Its taken me 2 1/2 months to get 1/3 of the way through it. Have been applying each teaching to the charts until I understand it in my sleep, then read the next concept and add that until I know it. Truly outstanding book and teacher. Easily one of the best top 5 trading books imo. Every single trading day is just a repeat of some other previous day. Once you start looking for the different types of days, they really start to stand out and you have a good idea of what will happen ahead of it happening. For retail traders, there is no free market seeking price. Its seeking profit for the big players as they move it and its our job to see them building the moves and jump on for the ride.
Volume, IMO, is only good for identifying potential turning points. Other than that, volume is pretty useless.
The average Joe investor is mostly about a 1/2 circuit behind the main competitors. Very often a company comes out with good results but the price falls. The why is answered by those in the know who have already factored in the new price which may be a tad high.
If its good for turning points, its also good for continuation moves. Both are showing different sides of the dominant volume in play. EG you might be watching a up move coming into a confluence S/R level, LVN and Fib area and volume shows a large climax of volume coming into this area. When you drill down into whats happening in that large spike of volume, you then see there are more buyers entering even though price shows a rejection off the level sucking in sellers before blasting through the level. The market can't hide volume. Big players can break up orders and buy over multiple price levels but the volume can't be hidden in the long run. Price can be repriced on very low volume by market makers but big moves can never happen with out the build up of big volume or big volume entering to move the market. Its not just volume that's important but who is in real control of that volume. Buyers or sellers, are they impatient and entering at market or are they building a position at limit. Personally for day trading, at market players seem to be in control of moving the market back and forward and are great to watch but the big moves are building in the background and they hide that behind the aggressive at market orders. Volume isn't the only thing to watch. Its just one of the pillars that should be watched. If you only focus on one of these then you only ever see part of the picture. Talk to a lot of the old players before indicators became the rage and they never relied on anything to interpret the market for them, they read the information that is there. Price, volume and time. Everything else is derived from those 3 sources of information. All the indicators are imperfect lagging reflections of these 3 sources of information.