Volume

No problem. Just checking: It's your circled bar and the reaction around that point that you are questioning?

 

Yes. Based on the subsequent drop in TF, big money seems to have been going short in that bar but the bar closed up.

 

Okay accutrader I am going to post 3 charts but I don't know how to post them all together.

The first is a cash chart to see what was happening for prior S&R

 

The second is a close up view of the same

 

Now I am posting your chart and let's get to work on this...

READING PRICE
Every style of chart shows something a of value. Range often gives a clue on what to expect next by showing how much gas is in the tank. So that can be very useful when we combine that information with volume.

It is faster to read the Gas Level if you use candle charts, and in your chart it's easiest to see for a first time learning if you look at the 3rd leg down to the 674 bottom. Imagine the Body of the Candle is the gas tank. Can you see how as PA drops it progressively runs out of gas (the bodies get smaller)? At the low it's a Doji and the reversal is on a near full tank of gas (Engulfing).

If you can grasp that let's go back to the top. It's a Double Top and the 1st top shows a little gas running out but the 2nd Top you can see better the gas is getting low. Range let's you see that as PA is attacking this prior high is does so with less energy and a reversal is more likely and that is before we add Volume into the picture.

At your circled bar there is NO REDUCTION in the energy in the range bar. We know there is Support here but the Range Candle gives no anticipation of a successful bounce. We also know from the Cash Chart that this is a critical support so now let's add Volume in to the question.

READING PRICE & VOLUME
First the Market High...
1.On the 1st high we have big volume closing on the low of the bar (1st green arrow)
2.Closing on the low on heavy volume is a warning
3.On the 2nd high completing the Double Top PA is running out of gas and the Volume confirms this
4.The highest close (2nd green arrow) is on lower volume than the prior high – there is no support behind this attack
5.The 1 st red arrow shows higher selling volume confirming the Double Top.
6.The next bar is slightly lower but on massive volume as the big traders read the top
7.In the whole mark drop this bar (thin red line) was the 2nd highest Volume until the final low
It was important to read the Volume in the reversal to see how important the move could be so you can get an answer to the circled bar.

Now your circled bar.
1.As PA approaches support we noted there was no indication that the range bar was losing gas.
2.As PA approaches support volume increases confirming the attack on the Critical Support
3.The Circled Bar shows this volume climax. This could be profit taking or increasing selling
4.The next green bar has no buying volume interest
5.PA readers are looking for a confirming higher close to Buy but there is none
6.Volume readers see no interest as noted
7.Range readers see no warning of reversal
8.The next red bar (Grey horizontal arrow) is on big volume confirming the attack on the critical support
9.Note how weak the green bars volume is and compare it the the 2nd top of the Double Top
10.That weak buying volume allowed the market break at the top and you are getting the same thing now

Next Bottom
1.You can see the same weak buying
2.There is no Range Bar anticipation for a reversal

Final Leg
1.PA is running out of gas (Candle bodies decreasing)
2.Volume is increasing into the low as the smart guys take their profits
3. Note the volume on the lowest (green) bar. It is higher than any buying since the market open
4.Remember that the first big volume green bar top is actually selling leaving a Tail Top
5.In other words it was selling volume but the bar showed green because the close was higher

Summary
PA gives great signals but when combined with volume the power of these signals can be greatly increased.

Your Errors
Some of the ways you described the PA was incorrect...

“The high volume bar was not at either support or resistance”
It was at intraday and longer term support

“no direction had been established”
An important Double Top with volume intent was in place giving a strong downtrend

“The subsequent fast drop suggests the high volume was caused by big money going short on the bar which closed up.”
No, the big money was already in at the top and this was a sucker bounce. There was no interest in the bar that closed up.

“Waiting to see what happens means missing the move.”
In naked trading PA you have a buy or continuation signal happening here, so even without volume you have a trade. This is in fact a great place to ensure you don't miss the move.

“My interpretation is that the higher than normal volume on the one bar must be due to big money going short even though the bar closed up. Is my interpretation correct”
This is moving into advanced trading and beyond the scope of what I can do here and now. There are a number of scenarios that would be a Yes answer and others that are a No. You need a number of tools to be able to see if it is a play or not and I think I have given you enough to think about.

“and, if so, how can big money control their entry so that they don’t overpower the direction of the bar?”
Unfortunately I am out of time and the answer to this is too complex to deal with here. However they don't overpower the direction of the bar. They test the market to move with it and you need to know how to read left of the current bar and keep going left.

Tests and retests are common and they don't always get it right. Volume gives and edge. PA gives and edge. Range gives its own peculiar edge. But there are many, many other tools and the art of trading is knowing what the market is giving by using these tools and inventing your own

For example, reading the gas or energy in candles is my own technique. Read Livermore to understand the concept of testing the market but remember today it is much more sophisticated and instant.

If you don't understand any of this say and I will endeavor to get back to you. Look at this chart in Candle view.

 

When a market drops to new lows sell orders are triggered creating liquidity and the contracts are bought back up until the liquidity runs out. This climax is what you see in your bars, although to fully appreciate it you need to be able to use/read the DOM or the order book.

 

Hi Xspurt:

Thank you so much for the superb answer and for taking the time to write such a complete explanation. I have been oblivious to using volume on individual bars other than when there is a volume spike. I have also been unsure about using the up/down closing of a bar as I thought that was subject to manipulation by the big guys.

You have opened my eyes to ways to use volume and pa together at significant prices For example, the first green bar that occurred with high volume gave a heads up to possible weakness by closing on its’ low and the highest close was with lower volume than the prior high.

I completely missed that the 9.38.42 bar being at sup/res. I thought that it was in no man’s land.

On one question you said you were out of time. Is there another time or place when you would be willing to help further? I have unblocked my email account on my profile.

Once again, thank you for your valuable reply.

 

Hi Dackster:

When a market drops to new lows sell orders are triggered creating liquidity and the contracts are bought back up until the liquidity runs out. This climax is what you see in your bars, although to fully appreciate it you need to be able to use/read the DOM or the order book.

How does someone learn how to read the DOM?

 

Later in the week I will PM you with some free resources so you can begin your studies.

Re. the DOM, I wouldn't get too carried away with this idea of extra liquidity on a new low. This is Jack Hershey's tunnel vision. For example, when a new low is reached it can trigger stops and increase liquidity, but it can also hit an area of low supply, so instead of high liquidity that can slow the market, PA runs fast until supply is hit.

This is where the best moves come and you can get visual clues on your range bar bodies and prior supply/demand reading.

Also patterns (that Jack misses) show up supply and demand congestion points very well and the breakouts are often on low supply because the demand is used up eg. breakout of a triangle.

However check the speed of the code of your software against the DOM. Fast code will tick the bar at the same speed as the DOM. Slow code will tick the bar a little later so you can get a jump ahead by seeing the break on the DOM.

Also you can set traps for the tape readers on the DOM but not with the T&S. That is your true volume.

 

Xspurt - Golden...

Accutrader,

Please be mindful, not all big money is smart money…, but all smart money is big money (smart money hides its intentions the best it can, big money doesn’t give a flip)


Also context is all important; don’t develop tunnel vision as you learn to decipher volume


RN