I see a lot of studies based on bid/ask volume. Ratios, differences, the actual volumes, etc. Has anyone found a use for that info? I made the long/short prediction indicator in the first two posts based on bid/ask volume. I don't know if that' useful at all, though. It just kinda tells you what just happened, not what is going to happen.
the only value I've personally found on bid/ask has to do with the order book... or basically looking at the resting order and the pace at which the OB has orders replenished or not, or basically the rate of change across all levels...
http://www.elitetrader.com/vb/showthread.php?s=&threadid=29005 I hope this link came through. If not do a search of price and volume a strategy by DPPhoenix very helpful.
None of that matters since it only expresses intent, and whatever predictive quality it may have is over in seconds. The volume that matters is transaction volume, i.e., trading activity. If, for example, you hit resistance with heavy volume, this suggests that sellers are out in force and that price is likely to reverse. If sellers were not active, volume would be lower. If another attempt is made to break resistance and volume is low, this translates as less trading activity, i.e., buyers are exhausted and can't push price higher even though sellers are not trying very hard to stop them (if they were, volume would be higher). This, again, suggests a reversal. Volume is not an indicator; it's just trading activity. If you want to understand what that activity means, you have to figure out what buyers and sellers are trying to accomplish at the time.
Am I getting this right? If price hits resistance on high volume it suggest a reversal. If price hits resistance on low volume it suggest a reversal.
Not quite. If price hits resistance the first time on strong volume, both sellers and buyers are ready to roll. If buyers can't push through, price will at least stall and likely reverse. This is called a "V reversal". If buyers try again but they can't rally the troops, sellers will have to make much less effort to turn them back, hence less trading activity, i.e., lower volume. This is the famed "double top". In any case, it's not the volume, it's the behavior of the traders involved. This is one reason why price can so often "break out" on unremarkable volume: sellers don't care enough to impede the effort, hence the low level of trading activity, i.e., the low volume.
Icranston - very good. It seemed you are the "real" trader that really know the market in the practical way (in the floor). It is surprise that we never see you post very often here. Unlike most (95%) of the postal here, they though by sitting in front of computer, pull- up a few charts from their brokers or free web site, look for their imaginary patterns or some simple indicator (to be honest, those really an idiot and dumb indicators that won't work and in institution the profesional never use those indicator) and think they will become the next millionaire.Those prediction only work 50% of time and in long term, they loss due to slippage and fees. The only one that will become the next millionaire is their broker and market maker.
Try this: go for higher probability of break out setups. -> decreasing volume -> volatility dried up Price is consolidating, all is quiet. Clear where to put stop and target. If you believe the statistics (Edwards and Magee) then symmetrical triangles, 75% of the time will break in the direction of the major trend. Try the decreasing volume
cumulative delta volume is an indicator I find usefull for directional trading. Sometimes price move with it and sometimes price move not with it. In either way, it is telling a lot about the direction price is going. I can see with this indicator that when heavy selling is going on, but price is not budging too the downside, we get a voilent move to the upside and vice versa. The key is relationship between volume and price and not going blindly like if the volume does do this, it is a bullisch move...