Price and Volume: Strategy

Discussion in 'Journals' started by dbphoenix, Jun 6, 2004.

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  1. dbphoenix


    I've been asked why I stopped providing annotations of daily charts. I replied at the time and since that there are only so many principles, and not very many of those. At some point, either one sees no value in them, in which case nothing is accomplished by continuing to provide redundant examples, or one does see value in them but doesn't know what to do next.

    This thread is about what to do next.

    As before, there will no discussion of indicators since the chief effect of these discussions is to flatten the learning curve. Posts which address indicators will be deleted. And while one can load one's charts with as many indicators as he or she likes in the privacy of his or her own home, those charts will be deleted. One of the goals of this thread will be to make things simple, not to add unnecessary layers of complexity.

    Learning how to trade using price and volume and their relationship requires a certain way of thinking about the market, a certain way of seeing. If one gets stuck in a mudhole after taking the wrong turn at the detour, one must first extricate himself from the mud before he can back up and try another route; if one has learned a certain way of thinking about and seeing the market, much of that may have to be unlearned before one can begin to distinguish between appearance and reality.

    This process can be extremely frustrating, even painful, and those who choose not to subject themselves to it are welcome to pursue their particular interests on one or more of the many threads available, or start new ones.

    As a starting point, I suggest that one think about the three basic approaches -- breakouts, reversals, and retracements/continuations -- and work toward developing at least one primary bread-and-butter strategy for each. One may want to focus on just breakouts, for example, to begin with, if the idea of developing three is overwhelming. But he must understand that the fewer tools he has available, the fewer opportunities he may find and the less he will be trading. Some may find this a relief. Others will find it intolerable.

    The original thread will remain, though I will be condensing it as much as possible, eliminating, for example, quoted posts since there's no point in having both the original and the quote. I'd like to go through all the charts again and make them more consistent with regard to the use of color and symbols and abbreviations, and that may happen someday, but don't hold your breath. The principles don't rely on color, and readers are much more likely to be interested in what happened yesterday than they are in a chart from March. And there are also the detailed files available at the Yahoo site (click Files, below), the most important of which are, after the Introduction ("What's A Chart?"), the Demand/Supply file and the uploads on support and resistance. Those alone can provide a shock to the system from which many do not recover.
  2. I copied the chart and wrote on it what my ideas are.
    Although, I didn't know how to interpret the last bar on 6/3
  3. dbphoenix


    You probably have a better handle on this than anybody.

    What's important about the bar you have labelled "new high" is partly that it is in fact a new high, but also that it's the high that can't be beat. Every bar that tries is beaten back, which is another way of saying that sellers beat back buyers at that level, repeatedly.

    As for the support zone, you're correct that it begins with the swing low after the swing high, but why a zone? Why not a straight line?

    As for the arrows, yes, they point to those bars which interact with support and resistance (if you don't locate S/R, then you have no anchor and you don't know what to look for; therefore, you don't know what you're looking at, and you waste your time analyzing bars that don't matter). The only exception is the one with the question mark above it which, as you point out, never makes it to R, and that's a big flashing red light. With siren.

    Are you interested in interpreting each of the PV pairs that are linked by arrows, for practice? If not, that's okay. I'm sure people will start PMing you, asking for your strategy. :D
  4. (Sorry for the delay, my family just got back from a weekend away.)

    The zone is a combination of LSL and subsequent lows after testing the high.
    Tho the upper side of the support zone is kind of a judgement call.
  5. Hey DB:
    I took a look at your chart, then read the posts. If I were you about now I would want to shoot myself (or maybe several others).

    As you may know (did you know?) I use volume analysis in my trading daily. My take on the chart (and the bars you have marked is perhaps "a little" different as follows:

    What I see is lack of demand. low volume generally and for the first bar, indicates that professional money is not interested and retail speculators don't have enough bullets to take control. Depending on the reports due out, it is also probable that smart money is waiting and gathering information. By the way I don't use candles. Instead I use bars with close only. I am only interested in two things. The range of the bar and where it closes (near the high or low).

    In my opinion, the channel shows where professionals are willing to take the market now. At the top of the channel, sellers come in (we can go into the reasons if anyone is interested) and at the bottom you have professionals and retail defending existing positions, accumulating inventory and in one instance (that brief dip below the channel) testing the supply/demand balance.

    If I remember correctly, someone wanted to know how it is that price eventually moves through or breaks out of the channel. If you look at the range of the bars, you will see that it isnt happening because there isnt enough momentum. For those that haven't figured it out. momentum is characterized by range PRIOR to reaching the barrier (channel border). To put it another way, think of what happens when a high jumper prepares to jump. What he does is to run up to the bar so that he can "translate" that velocity into a vertical leap. Price has to do the same thing in order to break out. That momentum is furnished by volume combined with a wider than "normal" range bar.

    You guys need to get it together. The markets open in a few hours. Best Regards, Steve46
  6. dbphoenix


    Could be, though I'd expect a longer base and higher volume. But the solid recovery supports your thesis.

    OTOH, it's difficult to apply the dynamics behind shakeouts to futures or to a stock with an extremely high trading volume since the influence it takes to create it probably isn't there. What's more important to the trader is to change his short bias, if he has one, and get back in tune with the market.
  7. dbphoenix


    That's why it's useful to create a zone rather than commit oneself to a single line. This is largely what a test is all about, poking a line, maybe going past it to see if there are any trades there, pulling back if there aren't. That's going to create a zone, even if it's only a few ticks wide.
  8. dbphoenix


    Good points. The idea that big demand has to be present in order for price to rise is a common misconception (addressed in some of the charts in the other thread and in some of the files at the Yahoo site). Price will rise with practically no demand at all if the selling interest isn't there, which is how you end up with so many bars that look like pushpins or thumbtacks with wimpy accompanying volume. This may occur because sellers are done, they sold what they wanted to sell and don't have any more to sell. Or it may be that they are in a position of control and fully expect to support the price if it drops below the range. None of which need matter to the trader, particularly if he doesn't include volume in his criteria for taking or not taking a trade. What matters more is that he get out when he sees that he got it wrong.
  9. dbphoenix


    As for this little exercise, it was provided partly to get the ball rolling and partly to focus on some of the more important points made in the previous thread. And as I pointed out more than once in the other thread, there are plenty of people who can do these analyses in their sleep but still can't trade. In order to trade it, you've got to define it and determine your criteria for entering/exiting a trade. Otherwise, you're just jacking off.

    No one is required to be uncomfortably specific about whatever it is that he's doing. But I hope that this thread will be a place for sharing ideas about useful and not so useful tactics, signposts and markers to look out for, possible ideas for backtesting (which, in this context, means reading charts and looking for patterns and anomalies). And, of course, to help resolve confusion about what a bar "means" and how to slip into the pushpull of buyers and sellers in real time in order to decide whether or not to make an entry.
  10. DB,
    Why would the resistance on your chart not be a zone as well ?
    #10     Jun 7, 2004
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