Spyder, Regarding the 'beginner' method, I feel like I've internalized the concept of the LBDU entry. After going back to Journal 1 and earlier in this Journal, I've come across some discussion on '2nd chance' entries. Could I get clarification on whether or not it's reasonable to consider entry if Vol has exceeded FRV prior to EOD, assuming the other indicators are in alignment? thanks, spooz
We use Dry Up Volume as a means to determine if the current rate of volume should exceed FRV by End of Day. We base this decision on a pro-rata basis of daily volume. Since our goal with entering long requires volume to exceed FRV levels before the end of day, entering later in the afternoon does fall within the guidelines. We use Dry Up levels in an effort to capture as much of the early price improvement as possible. However, if the volume and price movement doesn't start until the afternoon, I can think of no reason to ignore the signal entirely. After all, market sentiment can change quite quickly, and as a result, a morning rocket to the downside, can turn into a rocket to the upside by the afternoon. Of course, your mileage may vary. - Spydertrader
Spyder, I have a couple of questions that I haven't seen touched upon before which I'd like to bring up. They have been knawing at me literally for a couple of years. If you prefer that I start a different thread on this I will gladly do so, but brought it up here because it seems to key to Jack's method including the eventual transition to futures. There are two questions both related to volume: 1) Jack (as well as others) state that low volume is an indication of disagreement. The difficulty I have in understanding statements like this is that there is always an inverse which can be argued to be true also. In this case, couldn't one say that heavy volume with no price movement is an equal indication of disagreement? If half the traders think price is going up and the other half think price is going down, that's almost perfect disagreement and you will get a ton of volume. 2) As hard as I try I just cannot decipher any correlation between the Jokari window (which is just another way to state the old Wykoff rules)concepts and what the charts actually look like. For example, in an up move in an up trend you are to see increasing volume. But, hardly ever do you literally see that on a chart, day to day. I suspect that if indeed the Jokari concept is true, somehow looking at charts after the fact may change how the market looked in real time. I would appreciate any insight you can provide as I suspect I won't see any real progress until I get a handle on the PV relationship in a way that I can really believe.
I may be able to help a little with this first question. I think when Jack uses the word "disagreement" he is using it in a slightly different way then you are thinking. With low volume dryup there is a lot of disagreement because very few people are "shaking hands" and making trades. There is not much trading happening because both sides do not agree - sellers don't think they are getting a high enough price (or they think price will go higher soon), and buyers will not buy because they don't think the price is sufficiently low enough (or they think it will go lower). Either way, very little shaking of hands (IE - trades - IE disagreement). Now, on the other hand, when you have huge volume and little price change, you still have a lot of "shaking hands" going on. There are lots of trades happening, indicating lots of agreement. In that situation you may be looking at a change in price direction, since volume is still growing. I hope that helps a little.
I hope you don't mind if I add something: I think Jack means that the only thing people agree on is the price when they trade. They disagree on most everything else, including the direction (obviously). During volume dry up, they cannot even agree on price and price has to show movement one way or the other before sufficient number of buyers and sellers can be persuaded into action (either by exiting their position or entering from the sidelines). It's risky to hold during low volume as only relatively light volume will cause the price to move - one way or the other - chances are against you.
I cannot speak for Jack, but from my own point of view, I prefer to use the word disinterest, rather than disagreement when referring to low volume levels. In addition, referring to ambient level volume when describing Dry Up Levels may also paint a clearer picture. When I say I prefer the word 'Disinterest' to describe the activity at a certain price level, I mean to describe a situation where the vast majority of traders prefer to sit on the sidelines, rather than, enter into a position (either long or short). At this point in time, the vast majority of shareholders who wanted to sell have already offed their shares. In addition, interested parties looking to buy in have already entered and purchased those shares being sold. As a result, both price and volume sit at an ambient level for a time. I use the word ambient level here because, the volume levels, at which this phenomenon takes place, do not always occur at extremely low levels. At this point, in order to move additional money off the sidelines, and in order to convince current shareholders to sell their shares and bank a profit, price must head in one direction - higher. As volume begins to increase its pace, price begins to move higher in an effort to wrestle the shares out of the current owners. As more and more volume cascades into the equation, and price continues to head higher, the equity appears on the radar screens of traders all over the world as one of the day's fast mover's. This has the effect of bringing additional interest to bare upon the equity, and driving the price even higher. When we use the Jokari window, we need to keep in mind it isn't an absolute model. In other words, "we expect the trend to change" doesn't mean we can expect a trend change immediately. Any number of factors can, and often do, effect the price trend of an equity. The Jokari window doesn't operate within a vacuum. I call these additional factors which have influence on the price of an equity 'context.' The word context includes both micro-economic factors which directly influence per share price, as well as, macro-economic forces which effect the sector, index, market, country and planet as a whole. Some examples of context type forces include: price location within a channel, news, earnings, time (of day, week, month or year), geopolitical concerns, market sentiment and black swan events. In other words, the 'big picture' plays as important a role in price direction as does our trading rule set. Again, "All things being equal" the Jokari Window operates as it should - providing a method by which we can anticipate price trend continuation or retracement. However, when the short term forces of 'context' overwhelm the forces which propel a stocks natural cycle, we often see short term divergence from our anticipated results. Fortunately, the influence context plays upon an equity normally occurs over the short term. As a result, once these forces have played their hand, the anticipated results begin to trend back toward the ideal. I hope you find the above useful. If I can provide additional clarity, please do not hesitate to ask. - Spydertrader Edit: Opentrader and justyield provide excellent viewpoints in their posts as well. Hopefully, their combination of posts clarified things for you somewhat.
I think without realizing it you have given a nice description of peak Volume (often signaling cycle end.)
Actually, I did realize it. One thing that has been clear to me for a long time is the idea of Peak volume is for real. My mentor was a floor trader and we had discussions of what peak volume looked like on the floor. Heavy volume kept moving price until it didn't. The area that I'm really stuck on is all of what happens between DU and Peak and my suspicion is I've tried to understand the process in a strictly intellectual way instead of through experience. Another thing that was shared with me was the explanation that after price move up (or down) a lot the smart/big money would come in and buy (or sell) even more in large lots to suck in the crowd. Being able to "see" the transition from heavy volume moving price to heavy volume sort of just exhibitying some volatility without any real movement seems to be key. Spyder, thank you for your detailed explanation. I will think this through some more before requesting further insight.
Here is my take on volume. You want to consider buying after some evidence that most sellers have sold within the current trend as evident by lower volume and you want to buy when there is evidence that the stock is on alot of traders buy radar as evident by rising volume. It's that simple.