Wouldn't it be more useful to evaluate breakouts based on net volume rather than aggregate volume (pos vol + neg vol) as is currently done on Marketsmith and almost all other trading platforms?
ChatGPT stepped up right away: Volume is better than net volume for evaluating breakouts because it reflects the total amount of trading activity and interest in a stock. Net volume, which is the difference between positive and negative volume, may not capture the full picture of the market sentiment and demand for a stock. For example, if a stock has a high positive volume but also a high negative volume, the net volume may be low, but the overall volume is high. This indicates that there is a lot of trading activity and liquidity in the stock, which may facilitate a breakout. On the other hand, if a stock has a low positive volume and a low negative volume, the net volume may be zero, but the overall volume is low. This indicates that there is a lack of trading activity and interest in the stock, which may hinder a breakout. Therefore, volume is a more reliable indicator of the strength and validity of a breakout than net volume. My follow up question to ChatGPT: Is net volume a useful adjunct to volume in evaluating breakouts: Net volume may not be very useful as an adjunct to volume, because it does not reflect the total amount of trading activity and interest in a stock. Volume is a more reliable indicator of the strength and validity of a breakout, as it shows how many traders are participating in the move and pushing the price further. Net volume, which is the difference between positive and negative volume, may miss some important information about the market sentiment and demand for a stock. For example, if a stock has a high positive volume but also a high negative volume, the net volume may be low, but the overall volume is high. This indicates that there is a lot of trading activity and liquidity in the stock, which may facilitate a breakout. On the other hand, if a stock has a low positive volume and a low negative volume, the net volume may be zero, but the overall volume is low. This indicates that there is a lack of trading activity and interest in the stock, which may hinder a breakout. Therefore, net volume may not add much value to the analysis of breakouts, and volume may be sufficient by itself. No big Can-Slim breakout name has responded to my question though perhaps they viewed it as a rube question. ChatGPT gave what I thought is two persuasive answers in under 30 seconds.
AI, at this stage, is like using GPS to get somewhere. Sometimes it tells you to go the easier way, sometimes the shortest way, sometimes the fastest way, sometimes the less congested way. And sometimes even the smartest, shortest, easiest, fastest, less congested, best way all in one shot but not often enough. The 95% look for the latter but get the former ... and lol follow it. Which is better in following SPX Daily chart, vol pct (blue up, red down) or total vol (black?):-
To use a long example; Let’s say price is oscillating in a large range, each retrace into a LH would have new longs initiated. Same is true for new shorts for each LH. Price would then be contracting prior to a breakout. That breakout will close open positions accumulated within that range, profits for those on the right side of the market and losses for those not. If that move doesn’t attract traders to open new positions from those that are closing already open one’s, volume will not have a substantial increase. Price can still move in a direction of lower participation but that move will not be sustainable. That’s the structure of a continuous dual auction market, constantly probing and seeking greater participation.
Nothing does. But perfect prediction is never the objective. Higher probabilities on your side, than not, is.