On a very fine thread posted by maybe the funniest guy around here, a discussion of volume came up. One poster, also a very fine lad, posted a picture of a chart, and claimed, based on both price and volume metrics, you could tell essentially where a bottom was and the uptrend started. Another poster, himself quite a fine lad, posted another picture of a chart, but this time with trend lines drawn on it. He maintained that the volume was essentially irrelevant - at the very least the price action itself was much, much more important. Volume might provide some insight sometimes, but other times it gives the wrong signal. So what does everyone think? When I was a kid studying this stuff I always read that going up or down on high volume was a sign of great strength/weakness, since it meant lots of people were buying/selling, thus the market had "breadth". This never made much sense to me - sure, a stock going up on great volume means there are a lots of buyers, but for every share or unit bought, doesn't there have to be a share of unit sold? You can say "a stock going up on high volume means lots of people are interested in it." But can't you turn right back around and say "a stock going up on low volume means there are lots of people not willing to sell at that price and think they can get more!!!" Thoughts? Thanks.
This picture, posted years ago by another fine lad, shows volume/price divergences. Wyckoff and VSA are probably the best studies for interpreting volume. Looking for volume signals like in this picture, in significant areas (previous s/r areas), give the best edge when it comes to using volume, in my experience. I leave volume off my charts. It just distracts me. I don’t feel like it shows me anything I can’t already see in price action itself.
broomstick, there are several things that stick out in that chart. For one, why is there labeled "no demand" days, but those days have what looks to be higher than average volume?
Just saw this one, thanks! Right off hand. Take the 10:30 to 11:15. It show downward sloping volume. Yet, after that, the price goes up a lot. Then in the 15 to 15:30 range, it shows volume remaining flat, meaning "no divergence", apparently leading to the upside. But why the upside right after there WAS divergence in the 10:30 to 11:15 range? Maybe I'm not understanding it.
That’s a VSA based strategy. Checkout forex factory and search VSA and you’ll find lots of threads explaining the terminology used in VSA. As far as “no demand”, it’s because even though there was higher volume, price didn’t go up. So what’s that mean? It means there were lots of transactions, but it didn’t result in price rising - price really didn’t go anywhere. Especially on the first “no demand”. It was just a small dojo candle. Price goes up when there are lots of buyers and demand overwhelms supply. Since price didn’t go up, those transactions must have been absorbing any buying. Eventually as seen in the chart, price goes down. Volume has to be looked at as a “story” and has to be coupled with price movement as well. On the chart with divergences marked - price is either going up or down on higher volume, then it makes a double top/bottom and volume drops off. So price was heading in a certain direction, then volume dropped off and price reversed.
I believe there is some kind of volume study/indicator that can be used on certain charging programs. I’m not sure though. That chart I pulled from forex factory.
10:30-11:00 scenario there is heavy selling as seen by price plummeting and big volume spikes. This is a “selling climax”. You know this because of the massive volume, proce moving down, and then price stops moving down and goes sideways for a bit. The sellers are being absorbed and are exhausted. Volume drops off and creates a divergence and price is still right in the same area forming a double bottom. So sellers are absorbed/exhausted/done. Buyers have stepped in and price starts going up. The far right you mentioned means nothing. This is just price heading up. It pauses for a second and forms a double top. But it’s not in an important area (previous s/r) and there’s no signs of exhaustion/absorption, etc. You always have to look at volume AND what is actually happening with price in order for it to be effective.