Volume probably continues to be important with stocks. After all, it's been important since trading began for a variety of psychological reasons and I doubt that will change at any time in the foreseeable future. And there is some significance to volume "dryups", noted by many technicians going back to Wyckoff, the same significance there is to low volatility and the subsequent (sometimes) breakouts (I say "sometimes" because many stocks never recover and maintain that low volume until the volume and the stocks disappear entirely). I've learned, however, that the volume in and of itself is largely a decoy. The price action attracts attention and further attracts volume which then feeds on itself in much the same way as swing-point breakouts do. The price action is the key element, not the volume accompanying it. You usually have to drill down to a very small timeframe to see this happening, but it's there. Therefore, the entry is determined by the price action, not by the accompanying volume. If moths are attracted to the flame, the volume will be there, and all the psychodynamics which accompany volume movement will come into play. This is what makes the "breakout" with accompanying volume of whatever percent over the ADV problematic. If one waits for that volume confirmation, he stands a good chance of being faded. The breakout, in fact, may turn out to have been false (no way of knowing until it retraces and one sees whether it bounces or reverses). Some try to avoid all these twists and turns by letting the BO unfold as it will, then buy the retracement. But if the BO is bogus, those traders will find themselves buying a retracement that turns into a reversal unless they have filters in place that prevent them from doing so. Or, if the BO is legit, there may be no retracement for them to buy, even in small timeframes. Many potential problems, most of which can be avoided by focusing on price action and the "pattern" it's setting up rather than on the preceding and accompanying volume.
...all very astute observations. Your comments on breakout systems are of particular interest to me. If I were advising someone jsut starting out, I would recommend a breakout system. They may not make much money relative to the total move, but in my experience they are steady earners. Re the problem you mention of the breakout which really does, versus the one which retraces, I believe I have solved this frustrating problem by splitting the betting wad into two parts. The first part gets bet at the breakout, while the second part waits for a retrace, if one comes. Thus you don't have to guess whether the market is screaming this week or retracing, you just take the average of both strategies. My backtesting of NQ shows that this is exactly what happens: one strategy is preeminent for maybe a month, then the other one works better. Go figure.
You only trade the first 60? Interesting. As you know there are some nasty wide range bars right out of the blocks. The market will shoot up like its breaking out, stop and then completely reverse. How can anyone really trade that sort of thing in a way that makes sense?
...a pleasure to talk to you. We must have some common trading interests as we often wind up in the same threads. The reason I trade the open (NQ we're talking here) is sheer necessity. I have a day job that pays 20X a day what I currently make trading, so it is an unfortunate necessity to go to work after the open. Roughly three days out of four, the market eventually settles into a sustained tradeable move. That's what I play. This doesn't net much money after commish and slippage (1-2 NQ points per trade depending on how the market is "breathing"), but it's enough to stay in the game while the standard equipment wetware neural net feverishly looks for something better.
This is what I suggested to BO traders on my website, though I also suggested the option of a three-part entry: one-third at the BO, one-third at the ret, and the remaining third when the stock or index made a new BO high. This also provides some flexibility on the loss-limit and profit-protecting stops.
I agree regarding the WRBs. They can be a real pain. However, they occur far less often than you might think if you haven't studied the openings over several weeks. Far more often, you'll find a tentative poking here and there to see where the buyers and sellers are. This enables a nice, tight ORB play with fairly tight stops. And for the record, WRB=Wide Range Bar and ORB=Opening Range Breakout.
...agreed. But if you hang in there those AM WRB's will overcome the small losers. The trick is to be on the right side of the news which spawns them, IMO. Re ORBs, a couple of weeks ago I tested the much ballyhooed 30 minute ORB on NQ. It works so badly it's better to fade it. Best regards. - Mike
I have used volume for all of my trading career and have stoped using it for the last 5 months. I have significantly increased my returns. If you are a day trader then you know when volume is there and when its not just by seeing the T&S window and the depth of the market in the Nasdaq II window.