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Trade Anatomy - ramblings of an old-timer

  • #121
  • Jun 8, 2010 9:56pm Jun 8, 2010 9:56pm
Quoting chief1oar
the intentions of the players
...
[font=Arial, sans-serif][color=#000000]Price creates interest.
Interest creates Demand.
Demand creates Volume.
[font=Arial, sans-serif]When price is attractive it creates interest among buyers/sellers. When price is not attractive to buyers/sellers, it creates no interest. Participants are then...
It's the volatility, stupid!

If you eliminate the factors with volume that are unreliable --

 

  1. the current amount of a volume bar
  2. and precision in the middle volumes, in an unregulated market
  3. direction measuring with pairs, since they naturally cycle more than single symbols


-- then volatility, what's left, measured with an average of volume bars at that time of day (

Attached File(s)
File Type: ex4 Volume Teacher v4.ex4   33 KB | 361 downloads
, I think,) displays reliably.
It's easy to find any of the biggest-volume bars, whether with a small price bar
or the area a big price bar produces,
or only small-volume bars with a big price bar.

A level TL segment drawn from the affected price bar's center, if small, or both sides, if big, and to the finish of the bar's affect, works.

I had put off using volume, even though it showed promise, for a long time.
Thanks for your view on the subject.



P.S.: Sorry, OND, for interrupting the flow. This post is only my opinion.
And thanks, adopted the nick.
  • #122
  • Jun 8, 2010 10:57pm Jun 8, 2010 10:57pm
Quoting Old_Not_Dead
Astellas made some points pertaining to the Dollar-Yen weekly chart....

O N D,

This post was a few days back, but I'm trying to get caught up on all of the information! It clarified a lot for me in the way of: S/R & Psychology/Mindset (risk: reward arrogance, etc). The questions I have pertain to entry on the expected "ride down." You said to be on the lookout for a swing high and that a breach of 90.60 would be a good opportunity to short. Question 1: Would the appearance of a swing high just be an alert of sorts (if it occurred above 90.60?) Question 2: Are we looking for a V-Formation/ Fractal (I first read your post in Feb's thread) to enter after 90.60 has been breached, or is a close under 90.60 sufficient in and of its self? I'm confused on this aspect of PA....Thanks again for everything that you're doing here.
  • #123
  • Jun 9, 2010 1:43am Jun 9, 2010 1:43am
Hello everyone

Apologies for my recent lack of activity. My body told me in no uncertain terms that I should rest.

I will hopefully catch up on all the recent posts in due course but it's great to see discussion and analysis on the thread so please do continue. If we head off-topic at any point, I'll attempt to gently lead us back on the intended path.

Kind regards to all,

O N D
  • #124
  • Jun 9, 2010 1:47am Jun 9, 2010 1:47am
Hi Damien,

The inside bar in your chart, combined with the lower volume accompanying the up move, would tell me that this was a retracement following a temporary exhaustion of selling pressure (as indicated by the high volume at the end of the down move). Therefore, rather than looking to get long, I would be awaiting signs of the retracement being over and the volume getting behind a fresh move downward. I would then be trading short and I would be 'with the trend'.

Hope this helps. No such thing as a stupid question and be brave with your analysis as I am sure it helps others and will definitely help you.

Kind regards,

O N D


Quoting damosdmf
this is a trade im currently in its in demo while im learning this volume analysis any thoughts OND or anyone using this style. i know im vague on my descriptions lol i dont want to seem like an idot if im wrong lol. i have a strange suspicion im using my volumes completely the wrong way and seeing bullish when i should be seeing bearish?

regards damien
  • #125
  • Jun 9, 2010 1:59am Jun 9, 2010 1:59am
Hello Scoot

Good to have you here. I hope you manage to pick up many useful elements. Feb's V-method is slightly different to how I trade but the principles behind his reading of the markets is absolutely sound so you have chosen a good thread to follow.

I look forward to your contribution's here.

Kind regards,

O N D

Quoting Scoot84
Hi OND,

First off I'd like to thank you for continuing the learning process for newer traders. I'm 3/4ths of the way through Feb's thread and have read the posts that you've provided. I look forward to learning everything I can from this thread and at some point hopefully providing something. Thanks
  • #126
  • Jun 9, 2010 2:08am Jun 9, 2010 2:08am
Hello Astellas

My, my - trend reversals are what gets your blood pumping, I see

With the Gold trade idea, you are trading against a very strong trend and therefore need to see 'follow-through' to confirm that things are about to change. Without that, you are merely 'hoping' a top is in place. If a change in direction is in the making, we will have plenty of time to ride it back down after we have our confirmation. Otherwise, we are counter-trend traders in a bull market and such strategies should be limited to advaned traders in my view.

Regarding the Aussie, you are correctly being mindful of what could be the formation of a bottom. We need more confirmation. Let's see how today's daily bar closes before we allow ourselves to have any view on direction. What we want/need to see is a decent sized bullish bar today, closing near the high with relatively heavy volume. That will tell us there is appetite to change direction.

Kind regards,

O N D

Quoting Astellas
Hi OND

I see you're a comedian as well

I have my eye on the 2 markets below. May I ask what your thoughts on these would be (charts below).

Gold

[size=3][font=Times New Roman]Double top on daily, but seeing less volume on the 2nd top compared to the 1st top. Entry (short) would be below daily PB. The lack of volume on the recent down-bar (4 bars from the end) concerns me though as I would have liked...
  • #127
  • Jun 9, 2010 2:10am Jun 9, 2010 2:10am
Sometimes the best questions are asked by those who haven't filled their heads with too much faulty 'understanding'. Please see my reply to Astellas on the previous post for the answer. You are right to be mindful of the prevailing trend and to aim to have clarity about what needs to happen next

Kind regards,

O N D

Quoting Scoot84
Astellas,

On your Gold chart you're discussing a double top. I'm aware of what these are, but unclear of what moves are anticipated when one is forming. Being that Gold is in an uptrend, is this just a retracement you're anticipating or a full on reversal to the downside? Just trying to learn here...thanks!
  • #128
  • Jun 9, 2010 2:13am Jun 9, 2010 2:13am
Thank you chief

Most traders are mis-taught the 'basics' and therefore content such as you have provided is both necessary and illuminating. Very few traders will accept or recognise this fact due to the flaws in their initial learning and the myths that 'market talk' continues to perpetuate.

Kind regards,

O N D


Quoting chief1oar

Hi O n D,


[left][font=Arial]Thought I might share an excerpt from something I'm working on in hopes it will help someone understand the basic concept of volume and it's relevance to their trading, and make it a bit easier to grasp. What follows might seem condescending to some, as it may seem too simple and obvious, but it is not intended to be. It is only intended to reduce a vast subject to a basic idea which makes logical...
  • #129
  • Jun 9, 2010 2:18am Jun 9, 2010 2:18am
I'm sure chief will have his own reply he wishes to give to your question but it raises something I have been meaning to mention about complete price structure (price action and volume action).

Yes, we learn most from high volume activity and low volume activity. However, that is not to say we cannot learn from 'normal' volume, depending on where and when it occurs. I appreciate that sounds overly vague but things will become clearer as we go along.

In general terms though, being more choosy about how volume is analysed is something most traders new to the concepts must go through. In the beginning, traders are so enraptured that they try to read meaning into every bar and the volume that accompanies it. I expect to see the very same pattern in the early stages of this thread. The value in this type of analysis will come as traders learn to be more discerning.

Kind regards,

O N D

Quoting damosdmf
thanks chief so your saying the normal old volume has no interest to us just the sudden big volume spikes and sudden low volume ?

regards damien
  • #130
  • Jun 9, 2010 2:25am Jun 9, 2010 2:25am
Aha, my hardcore chartist

You are right to highlight relative volume as the time of day is highly relavent. It perhaps comes a little later in a trader's 'learning cycle' as they first need to get their heads around the concept of what individual changes in volume, from bar to bar, tell us.

For newer traders following the thread, do not worry if relative volume is a step too far at this early stage. However, there is much value in appreciating the concept if you are able.

I personally have not yet looked at the Volume Teacher indicator but I will do so as it could potentially assist those learning these methods.

Kind regards,

O N D



Quoting ha-pattern
It's the volatility, stupid!...
  • #131
  • Jun 9, 2010 2:32am Jun 9, 2010 2:32am
The overall structure of the market has changed since I commented on this chart so a breach of 90.60 would be less attractive now. Back when I originally posted, a swing high forming and then a breach of 90.60 would have given us the beginning of the V-formation that Feb discusses in his thread.

Kind regards,

O N D


Quoting Scoot84
O N D,

This post was a few days back, but I'm trying to get caught up on all of the information! It clarified a lot for me in the way of: S/R & Psychology/Mindset (risk: reward arrogance, etc). The questions I have pertain to entry on the expected "ride down." You said to be on the lookout for a swing high and that a breach of 90.60 would be a good opportunity to short. Question 1:...
  • #132
  • Jun 9, 2010 2:38am Jun 9, 2010 2:38am
I have had a burst of energy and have gone on a posting spree

I want to make a couple of general points at this stage if I may.

 

  1. Be mindful of prevailing trends when analysing the markets. Volume adds a vital element that will open your eyes to new ways of exploiting volatility but taking onboard new knowledge can often result in us losing sight of what we previously knew and this isn't always helpful. Finding turning points is part of what puts food on our tables but we must recognise that it involves more risk than 'selling the rallies' in a downtrend, for example. As such, we require confirmation that price is indeed changing direction. This is rarely given by a single bar.
  2. We have reached an interesting point in the markets generally. There is a possibility we are witnessing turning points in several currency pairs. Be alert to this possibility and reduce your risk accordingly. Until we get further confirmation, we simply do not know which way price will travel next. Also, be mindful of our tendency to want to be able to pick bottoms and tops. I've lost track of how many times I've kept accumulating profit on a trend trade I entered some time ago whilst everyone tries to convince us that a top/bottom is in place.

I will try to post some daily charts in due course to illustrate current uncertainty.

Kind regards,

O N D

  • #133
  • Jun 9, 2010 12:45pm Jun 9, 2010 12:45pm
Quoting Scoot84
Astellas,

On your Gold chart you're discussing a double top. I'm aware of what these are, but unclear of what moves are anticipated when one is forming. Being that Gold is in an uptrend, is this just a retracement you're anticipating or a full on reversal to the downside? Just trying to learn here...thanks!
Hi Scoot

I noticed that Gold formed a double-top on the daily, and have seen that this pattern can sometimes be a potential turning point for the current trend. So, given the high volume seen on the 1st top combined with the lower volume on the 2nd top I am now wondering if there is less interest from the 'smart money' in pushing the prices higher. Could be that they've already distributed their long positions and have loaded up on shorts on that 1st top; meaning trend change. But like OND says in his reply to you we need to wait for further confirmation.

Please take everything I say with a pinch of salt though because I'm still trying to find out what all the hidden pieces are, and how to put them together; just like you. But I think with this thread we're in the right place

Astellas
  • #134
  • Edited 4:47pm Jun 9, 2010 1:25pm | Edited 4:47pm
Quoting Old_Not_Dead

Regarding the Aussie, you are correctly being mindful of what could be the formation of a bottom. We need more confirmation. Let's see how today's daily bar closes before we allow ourselves to have any view on direction. What we want/need to see is a decent sized bullish bar today, closing near the high with relatively heavy volume. That will tell us there is appetite to change direction.
Hi OND

Hope you feel better soon. Relieved to know you’re still with us after your earlier joke

Thanks for your thoughts on AUDUSD and Gold.

I’d already gone long on AUDUSD this morning on a retracement to 0.8215. Have closed half the position on earlier targets, and have set the stop on the remaining position to breakeven. I’ll be watching to see how the daily candle closes for any further clues.

Kindest regards,

Astellas
  • #135
  • Edited 5:46pm Jun 9, 2010 4:16pm | Edited 5:46pm
Quoting damosdmf
thanks chief so your saying the normal old volume has no interest to us just the sudden big volume spikes and sudden low volume ?

regards damien
damien,

Volume is a way of measuring the market's feelings for the current price level or direction. So, all volume is important. If we only concentrate on one part, it's like reading only two chapters in a book and trying to understand what the book was all about. We must read the whole book to understand the story.

I have attached a chart of Gold from Alpari which may help clarify this idea.

At point 1., there is a sudden and extreme interest from the market. The volume spiked for several days, but the price really didn't move much. The bars are narrow, the price didn't rise or fall very far in comparison to the previous period. With all that tremendous activity why didn't the price show incredible spreads, extreme volatility? That tells us the market's most influential players are actively accumulating positions and the price on Gold is likely to change direction very soon. (Their intentions have changed.)

It does indeed change direction and begins a march upward. The volume after the spikes, returns to more normal levels, then continues steadily increasing with price. This tells us the public and the market maker's are happy with the price and want to see it continue upward. (area A. on the volume indi)

Around point 2., the volume has reached high levels (B.) when compared to the volume in area (A.). Price swings between 2. & 3. become wider and more erratic. High Price Volatility. The volume highs have leveled, but there are some dips. This tells us the market is reaching a point of saturation, or a waning interest in the price. Another flag, sentiment may be changing.

Price retraces some (3.). Notice that right at the lowest point (3.), there are 3 bars of very high volume on the lowest prices. This is the market maker's taking interim positions for the coming bounce back up.

Price then bounces back between (3.) and (4.) but volume continues to decline (C.). This time, the dips in the volume are more severe, the difference between highs and lows greater, the price spread generally narrow. Volume Volatility. The market is unsure of direction and continued price. Another red flag.

Again, the market seems to be losing interest in the current price level. Gold's price will be changing soon.

Hope this helps clarify things some. Just remember that volume is a road map to the intentions of the market, but it must be viewed from the proper perspective. The story is there if we learn how to read it.

Hope this helps....

Sincerely,

Chief

Attached Image (click to enlarge)
Click to Enlarge Name: 2010-06-09_1428.png Size: 33 KB
  • #136
  • Jun 9, 2010 5:39pm Jun 9, 2010 5:39pm
I am still suspicious of these volume readings. Where does Alpari's gold volume come from? I look at the futures volume on gold and it is as one might expect in that situation but Alpari's is radically high (for the record the futures tick count on the days in question is also not out of line with prior days).

http://charts.dacharts.net/2010-06-09/kw4.gif

So, how would I have read that period (with my now perfect hindsight (I don't do quite so well in real time).

Gold has dipped in a weekly/monthly up trend. On a weekly you saw 2 pushes down into the last pullback so resumption is very possible. So on the daily from 2/22 I start drawing a channel when the first new higher highs occur. The channel we see on the chart has been raised with new highs on 3/03.

At 3/24 price has pulled down into a perfect ABCD and the diagonal downsloping line on the chart shows that CD actually equals AB at this point (wow, all the symmetry and gartley believers will be getting long). Also its broken 50% and just above 62% on fibs so fib faders will get long and there will be support from people hoping for a touch of 62. And support from those hoping for a touch of the channel or willing to jump in if price reacts in the last 10% of a channel.

Finally and importantly at this point liquidity has been generated for an up move by 1) breaking the AB leg (and getting stops on people long the first pullback and break) and 2) breaking the last leg up before the high (and getting those stops, see horizontal line on chart). We see a little rise in futures volume on that break.

So, price has reached a point with a lot of potential supporters should it recommence the up move:
- fib believers
- gartley and symmetry believers
- channel watchers (and those who see the parallels without drawing them)
- the people who got stopped out
- people who watch for small breaks of prior S&R for indications of test and failure

So, you can be confident that if you go long on break of the little inside bar you will have other supporters and a nice small risk for the potential reward.

What do I see now?
1. We do have a new high but it was only a tick through. If I traded gold I'd be long or partially profit taken as I trade with the trend as my helper.
2. Volume is down vs the last high so perhaps failure is likely (keep your stops or exit points appropriate).
3. You can see that the move from the pullback low on 5/21 took longer than it took to do the same price range on the way up so the stoch, macd and other oscillator folk will likely be salivating at divergence and ready to jump short (hmmm ... false pullback and buy a breakout?)

I don't actually know any more than I know if the share markets are going to go up or down ... I just know that long is the correct direction but I'd have got long on a pullback not on this weak break. Changing to short would require a fair bit more to convince me.
  • #137
  • Jun 9, 2010 6:22pm Jun 9, 2010 6:22pm
Quoting Astellas
Hi Scoot

I noticed that Gold formed a double-top on the daily, and have seen that this pattern can sometimes be a potential turning point for the current trend. So, given the high volume seen on the 1st top combined with the lower volume on the 2nd top I am now wondering if there is less interest from the 'smart money' in pushing the prices higher. Could be that they've already distributed their long positions and have loaded up on shorts on that 1st top; meaning trend change. But like OND says in his reply to you we need to wait for further confirmation....
Astellas,

Thanks for the reply. I would have sent you a PM with the question, but until I become a full "member" I'm limited in what I can do in the forums. Hopefully they'll lift the restrictions soon as I would like to post some charts! I see what you mean about the lower volume on the second potential top. I don't have gold on my current metatrader account (need to change that), but the next candle was important correct? I saw the term "pin bar" mentioned here in this thread and looked it up. Would the candle on June 8th be considered one of these? And if so, this would definitely add to your feelings of a coming reversal right? Finally, would confirmation for you be considered a break of the neckline (around 1178.60), a close below the neckline or some other method? Based upon O N D's post I guess the decision is determined by the risk profile we set for ourselves.

Hopefully we all add to our ability to "put the pieces together" and I too think we're in the right place. Have a good one.
  • #138
  • Jun 9, 2010 6:47pm Jun 9, 2010 6:47pm
Quoting kiwi_trader
I am still suspicious of these volume readings. Where does Alpari's gold volume come from? I look at the futures volume on gold and it is as one might expect in that situation but Alpari's is radically high (for the record the futures tick count on the days in question is also not out of line with prior days).
....
....Changing to short would require a fair bit more to convince me.

Kiwi,

totally agree with you. I don't trade with Alpari so I can't really answer your question except to say that many of the products that forex brokers sell are created and sold in-house. I would be extremely skeptical of the volume numbers on any of the non-forex products sold by most forex brokers.

As a side note, be skeptical of volumes on MT brokers charts for Daily charts as they seem to frequently change their data feed providers which can create some wide differences over time.

I chose that particular chart because it was easy to illustrate a story with. Maybe would have been better to not mention that it was a Gold chart.

Yes, you are correct in that it would take a fair bit to persuade that Gold was ready for a major decline at this point. Always better to trade with the trend.

Attached are 2 spot futures charts. You can see that both of them are radically different, and I don't see anything which would indicate a long term major change in direction at this point.

Sincerely,

Chief
Attached Image(s) (click to enlarge)
Click to Enlarge Name: 2010-06-09_1745.png Size: 39 KB
Click to Enlarge Name: 2010-06-09_1745_001.png Size: 52 KB
  • #139
  • Edited 9:00pm Jun 9, 2010 8:29pm | Edited 9:00pm
Apologies OND for dragging off theme on your thread in the post above. I just wanted to raise the volume issue and add the sort of things I look for in a trade (which might be a bit different from the topic of the thread).

Chief, I think the issue with the GC chart is that some contracts trade for a long time after the volume has moved onto the next one (Nymex Gold (GC) for about a month so I'm on August even though June is still tradable). It appears that Ameritrade's GC contract is adjusted by expiry date not by comparing contract volumes which would be why you get those very low volume periods. How they manage to get such poorly formed daily bars is a bit of a mystery though given that June still looks ok.
  • #140
  • Jun 9, 2010 8:42pm Jun 9, 2010 8:42pm
Quoting chief1oar
damien,

Volume is a way of measuring the market's feelings for the current price level or direction. So, all volume is important. If we only concentrate on one part, it's like reading only two chapters in a book and trying to understand what the book was all about. We must read the whole book to understand the story.

I have attached a chart of Gold from Alpari which may help clarify this idea.

At point 1., there is a sudden and extreme interest from the market. The volume spiked for several days, but the price really didn't move much. The...
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