Greetings fellow traders. I have been a long term investor in the UK markets for over 12 years with moderate success. Over that period I have read dozens of books, each one giving me a little bit more knowledge and accuracy with my investing, however my time has turned to a more shorter timeframe with trading as well. Since lockdown I read 2 of the most important books so far. 'Reminiscence of a Stock operator' by Edwin Lefèvre, and 'The complete guide to volume price analysis' by Anna Coulling. They have had profound effect on my results and the way I now read the markets. The essence is simple, its how to read market volume effectively. I first just want to make it clear that I recognise we have been in a roaring bull market since the April 2020, so I am acutely aware of how my viewpoint my be skewed based on the underlying strength and recovery of the UK markets. The results that I am seeing after 6 months of solid research has been really eye opening and it has pushed me to publicly publish my trading journal with a new spread betting account. I have always treated the markets as a business and taking it very seriously, so recording and logging notes is part and parcel of my trading, so I thought why not create a trading journal and encourage discussion and education based on that. This is a part time commitment for me but I will endeavour to update the blog at least once a week. If your interested please drop by at www.burning-both-ends.com Regards Sean
Volume is lagging information. Suggest not using it. Not only that, but it's an additional variable. (More variables = more decision conflict = more missed profit opportunities.)
Interesting, first of all can you expand on why its lagging? I know how something like MACD would be a lagging indicator, but I am curious to learn how volume lags? This is 1 out of the 2 variables I am using. Volume and price, so not a good start to my strategy if that's true lol Sean
1. When you see a move, then look to the volume... you want to know what the volume "was" on that bar... you're "waiting for the bar to complete to know the volume".... so that likely means waiting an entire "day" (or worse, over a few/several days... you know, to "confirm"?). What do you do when your "price trigger" is not "confirmed by volume"? Pass on the trade? You should be getting your signal sooner and off of price alone. 2. Important highs and lows are made on both light and heavy volume days. So which it the important one? And then there's the "volume spike but no follow-through" thingy that happens so much these days. Personally, I don't pay any attention to volume at all in trade decisions... other than the recent handle to see what the max size of play is reasonable... 0.5%, in my case.
Yeah, volume is just going to add confusion. You only know what volume represented in hindsight. Trade off price alone that way you only have a single variable to deal with.
I would question that theory, but only because of what I have learned over the last year or so, and the may answer lie with manipulation. If you think about how a price is constructed with both buyers and sellers pushing through their orders, if its fairly balanced then the price will hardly budge. but for the moment if we think of a worse case scenario, panic selling, price waterfalls, gapping down etc then we know there is too much supply and people cant exit, so it becomes easy to visualise how a high volume of sellers can push prices down. However what is really interesting is the manipulation of prices that can take place. I never realised or understood how the market makers can move a price around with little volume, they are the ones who can set the prices here, not always but can do. look at this following chart I have added, big move up on the green candle breaking out of consolidation, on little volume. if you compare this to the price the day before its of a similar size, on less volume. Because of the lack of volume and participation the price has fallen away (for how long I am not sure) but the breakout looks weak. Either that or all of the sellers have cleared off and there is a clean run to push this higher, its very difficult to judge. That particular breakout on low volume is an anomaly for me, it gets my attention. Because of my time constraints, I have planned to keep trades open anything from 2 days to 3 months. it depends on what the situation is. I think the beauty behind this analysis can actually be applied on any timescale. Anna Coulling documents this much better than I can, for example she makes it clear how the big institutions have to build their position over time otherwise they would completely spook the market with their orders.
I would also like to add this following chart as well to showcase the power of volume against price. but before I do, I just wanted to make it very clear about when these annotations were completed. I have no reason to lie hear, I have not made this up. These annotations were entered on the day of that particular candle, the star just highlights that day. I am not selling anything, so my findings such as this chart have proven to me how powerful VPA is. I do not aim pick the highs and lows. But it certainly helps finding weakness and strengths in price.
Mate, you're doing real well. Just so you know, you can actually PROVE the times where you did the notations via blockchain timestamps, at https://opentimestamps.org/ All the best 2021!
New post up on the blog, couple of orders placed. The short I am comfortable with, this one from LSE: TCM creates all sorts of uncertainty though. Completely wild price setting from the market makers, is this a tree shake to clear out the weaker holders?