Question for Volume Experts

Discussion in 'Trading' started by fseitun, Nov 19, 2009.

  1. fseitun

    fseitun

    Great observation.

    Last night while I was in bed trying to fall asleep, I was thinking about the same thing.

    The key here is how the adv-decl volume lines are computed.

    Like you said, if we gap considerably lower, all the volume will be tagged as "declining" volume as long as stocks are trading at a price < previous day's close.

    Here is an example:

    if we have a big downgap - say -2% on average for most stocks - and stocks start to rise or accumulate shortly after the open...well, the adv-decl volume lines will keep showing "bearish" volume until the gap is filled and most stocks get back in the green.

    Yesterday was a perfect example for this scenario: we gapped considerably lower, adv-decl volume lines showed "bearish" volume...yet we hit a bottom shortly after 11:00am ET and even rallied off that.

    Guess what? The adv-decl volume lines still showed "bearish" volume. Why? Because most stocks couldn't make it back to prior day's closing prices.

    In conclusion, the adv-decl volume lines can be a misleading indicator unless you associate it to what price is doing.

    Unfortunately I am not familiar with ELD programming - I use Tradestation - but if anyone is good at it, maybe we could tweak the current adv-decl volume lines to show what volume is doing from 9:30am ET inconsiderate of the gap.

    I am sure it won't take a rocket scientist to get the adv-decl volume lines to compute volume outside the opening gaps.

    If anyone is interested and skilled in programming, we could get a more reliable indicator that tells the real story.
     
    #11     Nov 20, 2009
  2. Very interesting thread. I was actually wondering about this myself and now it actually makes sense.
     
    #12     Nov 20, 2009
  3. Buy1Sell2

    Buy1Sell2

    There is no such thing as a volume expert. :)
     
    #13     Nov 20, 2009