You know, I have done a lot of reading on these boards for the past couple of months and the last 3-4 weeks especially focused on understanding the tape and watching price action on five minute candlestick bars, level II screens and volume all at the same time. What I have noticed is something alarming. You remember in school when you were taking calculus, linear algebra, statistics or anything of the like, and the prof would lecture and give examples on the board of how to solve the problems and you remember thinking, wow, this isnt that difficult and then you went home and did the assignment and other problems from the text and found that althought difficult, you could learn this stuff, but then came exam time and the problems that seemed so easy from the prof and the text, well, you got somethign that looked a little different, just didnt have the same easiness, and the prof decided to throw some kinks in just to make it difficult. Well, that is what it is like on these boards when it comes to trading and reading the tape. Everyone talks a good game but when it comes right down to it, there is nothing tangible and concrete about what they are saying. Let me give you an example. If you do some research, as I have, there was a thread started I dont know when, maybe someone else does, I believe it was discussing the importance of volume when reading the tape and that price and volume go hand in hand. Great, no problem, makes sense right?!! In that thread there was a chart with an example of what the person was talking about. I cant remember where the thread is, but basically the gist of it was that the stock in question was on a staircase upwards early in the day. There were three legs up. The first leg up had green bars with significant volume and the volume itself was on an upwards staircase, meaning that interest in the stock was strong, so it was good to get in. Great. The second leg up had lesser volume than the first leg up but the volume itself was still on an upwards stair case meaning that as the price increased, yes, there was more interest in buying. Okay. The third leg up had even lesser volume than the second leg up, but this time the volume was on a downwards staircase, indicating that the trend was about to change and that the stock would reverse. Makes perfect sense. Low and behold, the stock reversed and started to come down. Hence, the price action and volume indicated exactly that. I left thinking, okay, I learned something here. This is good. Study. Learn. Look at other charts. So I did. Here's what I concluded. The same as the prof example, that was an ideal situation that cannot be applied to the average day in the average stock. Have a look at this snapshot for example. I currently own this stock myself but I dont daytrade it, because I dont know how and am not currently set up to do so. I will in the short term future be set up to do so, but until I learn to daytrade, I will simply trade longer term time frames. Nevertheless, have a look at the chart for todays action and the corresponding volume. Tell me what you see. What I see is a day that started out with some serious strength and then became random out of nowhere with no particular trend and I find myself lost. Just look at that volume bar just after 12:45pm. The sell side volume picks up substantially. The move to the downside? Basically nonexistent. Does anyone see any trends at all. You see, that is the problem, taking what people say on these boards and making it tangible. Look, no one is going to teach anyone how to trade, any idiot knows that, but it would be nice to hear someoneâs opinion on a day where things are strong, but yet no real pattern exists to trade. Any other stocks and snapshots and examples would be great. Feel free to comment, criticize (which I am sure many will do and love to do) and add in depth analysis.
There is an inverse Gresham's Law at work on ET: my bad advice will draw in good. That advice? If you want to daytrade, trade index futures. Stocks are far too susceptible to marketmaker and insider shenanigans and manipulations. The major indices are far less so. Plus you have the advantage of enormous liquidity, low commissions, fast fills, and low slippage. And there is no dearth of excellent bad advice here on how to trade them.
Investorsources Your comments "Tell me what you see. What I see is a day that started out with some serious strength and then became random out of nowhere with no particular trend and I find myself lost. Just look at that volume bar just after 12:45pm. The sell side volume picks up substantially. The move to the downside? Basically nonexistent. Does anyone see any trends at all." First let me say from my perspective (a full time trader for many years who is very dependent on charts) it appears to me chart watching (reading) is very much a situation of what you saw, what you thought you saw and what you now think you saw!!!! You say "The sell side volume picks up substantially." When I look at the price compared to the previous bar, I would have to question if this is sell volume. Yes, the volume bar is red because the close is lower than the open. But this is a gap up bar of five minutes. It is dependent on how you chop up price acton to view price action. Is the trader of this volume trading off the same five minute bars?? Maybe, maybe not. It is quite easy to paint, taint or tint a chart based on the number of days used, time frame, tick frame, volume frame, software brand, etc. (my software shows this five minute bar as an unchanged bar) Also, in my experience volume (especially a few trade volume spike) is much less meaningful on the indexes than on an individual stock. This 500,000 trade may have been part of a hedge and/or option play.
Well do you see any trends at all that day that would have signaled a buy or sell in your opinion. The example in the middle of my first post was very easy to understand, but also ideal. The example of the SMH yesterday, was not an ideal trading day, in my opinion. If you have another opinion on that I would like to hear it. Also, do you use ADX/DMI analysis in your daytrading and if so, what importance do you place on it. If you look at todays chart of the SMH, I have been wrong since 33.79, when I thougth the DMI+ and DMI- gap needed to be closed. The positive trend was strong, but I figured it needed to come off a bit since it was at the high end of its range. As it happens it has been strong all day and even when it dipped at 12:15 pm the stock still didnt go down. Your thought on this would be appreciated. Here's the chart.
Let me still add one more lead on the dearth of excellent advice here. If ye hear BUY: SELL; If ye hear SELL: BUY. That's it, no further filtering required. Hope this helps.
Hi IS, You might be interested in reading some Wyckoff. I don't mean that sarcastically. Wyckoff, the one and original price/volume dude, didn't just look at pv in a simplistic way. He had 3 Laws, not just one: Supply & Demand, Cause and Effect, and Effort vs Result. All 3 must be taken into account when interpreting pv behavior. Take the extremely wide-spread bar at the beginning of your chart. First of all, on the daily, there was a sharp downtrend to 10/12 to support in the 34 area from late-Jun/early-Jul. This is a possible minor selling climax. Price then consolidates in a little trading-range for a good 2 wks, furthering the case for the SC, to the 27th and 28th, which may be a shakeout of the range. Note the 28th closes on the high on relatively strong vol. From here one watches the pv behavior of the test of that potential shakeout. Does it follow-thru? Is there commensurate result from the effort? Dropping down to your intraday chart, there is that massive wide spread on hardly any vol at all. It's kind of a bizarre bar and hard to interpret and hindsight is, of course, 20/20. But consider the supply/demand scenario: If this is a SC, then by the very definition, supply has been at least temporarily exhausted. Therefore price moves up sharply not because of great demand, but because of serious lack of supply. This is what Wyckoff refers to as an Automatic Rally off a SC. So now one looks for the nature of the reaction, which must occur, to such a climatic bar. For a Wyckoffian, this is called the Secondary Test and the fact that price basically goes sideways, w/almost nil retracement, is positive. Spreads narrow, vol contracts, price does nothing. Where are the sellers following at least a short-term climax? Where is the supply? On the 12:45 bar you yourself point out the second law, Effort vs Result: What happens here? We see a very narrow spread on very high vol making little price progress. (Actually I think this vol bar should be green, since the close is higher than the previous close.) This scenario would indicate distribution. But there is no follow-thru to the downside, so what must have happened in that bar is that buyers held up price, there must have been more buying than selling, otherwise surely there would at least be a reaction/retracement to follow. There is not. This indicates demand at this point on your chart, in a very tight trading range. If you could post the current chart in this timeframe it would be helpful. Yep, hindsight is indeed 20/20. But those 2 bars, the very ones you point out as being "lost", carry much meaning. And if this were live and I was wrong in my analysis, it would be my own mis-interpretation, not the concepts. Wyckoff teaches that all auction markets are based on supply and demand which cycle between trend and consolidation; the trend exhausts itself into consolidation and that trading-range prepares for the next trend. The trader's task is to determine whether that consolidation is distribution or accumulation, re-distribution or re-accumulation. PV interpretation is cumulative, one bar is only one bar, what happens before must be taken into account and analyzed, as well as the immediate aftermath. In your chart there is a previous downtrend and SC, then a consolidation of apparent accumulation, and presently seems to be uptrending again, at least for the short-term. Harold
Re: Your latest chart. Excellent. Practically a textbook example of an uptrend. From the start note the strong relative vol on wide spreads up closing on the highs vs shallow, almost nil retracements on narrow spreads going sideways on contracting, low vol. Note also, however, the progressively declining vol on the rallies, indicating a possible short-term "pause-for-the-cause". Daily bar still looking good at this point at 50% retracement, sitting at mid-trading range and the flattening 200d ma. H
When you say daily bar, what are you looking at. If you look at the ADX/DMI it is trending stong to upside all day. But at some point, which I thought would be in the 33.80 range towards the beginning of the day. The ADX was crossing over the DMI+ and heading towards 60 range and I figured it was time for the gap between DMI+ and DMI- to be closed a bit. Well, it did close but not until 2:15 et time when the stock was up yet another 0.40 cents.
I mean the current rt daily bar. As for the ADX, I don't use it personally and that's not what my response was about. You asked, I thought rather specifically, about pv interpretation, which was the gist of my explanation. Sorry, I don't know nuthin' 'bout no indicators, 'cepting maybe ma's. You kinda switched subjects in mid-stream, or I misread your original intent, so you lost me. I wish you great good luck w/your endeavors. H
Investorsources, what you are describing in your first post is the infamous well-chosen example (WCE). What beginning traders often fail to understand is that we can never trade in the middle of a WCE -- only at the 'hard right edge'. A good example chart, as opposed to a WCE, should not show anything beyond the bar or candle that the instructor is talking about. The outcome is always irrelevant for purposes of the example. Regarding the teaching of data trading, I am convinced that most good day traders cannot explain what they are doing, as they are doing it, any more than a great pianist can explain how he decides which key to press with which finger as he is performing. They both 'just do it', and the end result is a work of art. Thinking about it ruins the performance, probably because it requires them to use a different part of their brain.