Daytrading- Big Picture and Volume Analysis

elecgene

http://www.elitetrader.com/vb/showthread.php?threadid=131557

 

EMC2Trader   Registered: Jul 2008 Posts: 12	07-13-08 06:08 PM It is very easy to lose the 揊orest for the Trees?when day trading. Part of the big picture is "Volume analysis," and part of the big picture is "Macro price analysis." Since I am new to this forum, I wanted to mention a few things, and Ill try to be brief. I am a passionate trader just like many of you here. I have no idea if everyone here is an experienced trader, successful trader, just starting out, trying to learn new ideas, trying to hear about others approaches, etc. In browsing the forums, my sense is this a place for traders to help traders, and that抯 what Ill try to do here as well. I am happy to answer any questions you may have, but I am here to (1) Hopefully mention some things that may be of interest to those who trade (2) Discuss any and all areas of trading (3) Continue to meet other interesting traders around the world. (4) Offer my little perspective on the ES market (5) Listen to other peoples perspectives as well. Simply put, I am no different from most of you in that I have a passion for trading. I have been around long enough, and have seen much of what is out there, and quite frankly, I have made many of the mistakes that most traders unfortunately make at some point in their trading efforts. Also, the way I look to trade is by no means the only way to trade. There are so many styles and ways to do this, and no one style or approach is necessarily better or worse than any other. In the end, it is my opinion, that you simply need some type of a solid plan that you have the confidence and discipline to follow on a consistent basis. The big picture, including macro price structure and volume analysis, can be very helpful in setting up such a plan So, Ill begin by sharing some thoughts on volume analysis that will hopefully be of some interest, and then Ill continue to share some ongoing thoughts on volume and big picture analysis in the current ES environment, and of course respond to any questions/comments along the way, and truly, my only hope is for everyone to do well in their trading, no matter what style, or approach they use.
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EMC2Trader   Registered: Jul 2008 Posts: 12

07-13-08 06:12 PM Day trading and Volume ?If you have never considered 揤olume?in your day trading, maybe this information will provide something new for you to consider. It certainly can be applied in many different ways, and I continue to find it fascinating to explore. We know that price vacillates all over the place, up and down, in the day timeframe. For those of you who have studied Market Profile the following will make a lot of sense to you. Assume that price action up and down, is nothing more than price moving up and down to fill 揵ig orders?in the market. In other words, forget about trends, support, resistance, or anything else other than the fact that all that is happening in the market is wherever the big orders are, price is going to go there. Conversely, if there are no big orders in a certain price area, price will move to another area to seek out where the big orders are. With this perspective, you can see how lower prices are often not 搒ellers pushing price lower,?but rather price moving lower to find the big orders of patient buyers. Higher prices do not have to represent 揵uying pressure,?but instead can be the only course price can travel, after 揳ll?buyers have patiently bought lower, and now the only participant looking to act are sellers up above. Price must go higher in response to this imbalance. When you view price as nothing more than a vacillating entity looking to fill big orders, volume analysis can be the shining light with regard to price movement, showing where the big orders are, when the big orders are drying up, and where price is likely to go next, either to seek out new participants, or continue on its path to satisfy the big orders of existing participants. For trading purposes, we start by watching for a volume extreme to develop, and then we watch to see what happens next. All price action accompanied by non-volume extremes is meaningless for this analysis. When you set a good measure for up and down volume against price (i.e. volume ratio), you will be able to see where volume reaches an extreme, or reaches a level where big orders are. When a volume extreme is reached, price will do one of three things: (1) Immediately move to an opposite extreme to fill opposite big orders (i.e.- all big buy orders filled low, go to fill big sell orders high), (2) Hang around this area and continue to fill remaining big orders with help from the anxiety of opposite big orders that aren抰 being filled (i.e.- there are still more big buy orders to fill at low prices, price rises but never reaches the point where big sell orders are, so sellers cave in and sell lower, while buyers remain patient and buy lower), or (3) Hang around in this area and even though there less big orders to fill (i.e. - Most big buy orders are filled low, and price moves back down to this area with few big buy orders left to fill). In case one, volume extreme vacillation means you are in a range with a single set of big orders above and below. Eventually all big orders dry up, price contracts, and price will have to move far out of this area to find new big order participants. In case two, a volume extreme is the beginning to discovering many big orders. This condition is accompanied by opposite participants who are impatient to wait for price to come back to fill their big orders. Therefore, a volume extreme in one direction is followed by a non-extreme in the other direction, and price moves back in the original extreme and direction to fill more big orders, but in this case these big orders consist of both buyer and seller 杘ne patient, the other anxious. In case three, a volume extreme discovers a decent amount of big orders, and price continues to hang around in the area to fill these orders without a push from opposite side anxiety (Opposite side patiently waits for price to eventually come back to them). Therefore, as price continues to fill all big orders of one participant, volume slowly dries up signifying all big orders in this area are filled, and price must now move in an opposite direction to fill the orders for the patient participants waiting on the other side. When you place all this understanding in the context of not predicting how this will unfold, but reacting to how it unfolds according to market structure, it can result in very powerful trading opportunities. Here are a few examples: 1. If you see one volume extreme move to another volume extreme, know activity is starting to dry up in this area, and price is getting ready to move to a new area altogether. The trading implication is to stop taking new trades until you can recognize which patient big picture participant will win the tug of war waiting for price to come to it. 2. Strong volume extremes, followed by a lack of opposite volume extremes, means a continuation of current price direction is likely (big orders on both sides contributing to the continuation as one side is anxious, the other side patient). The trading implication is to look to enter new trades on pullbacks that aren抰 experiencing volume extremes. 3.Strong volume extremes followed by price continuation unaccompanied by new volume extremes, means the big orders are drying up in this area, and the other side is remaining patient to wait for price to come to back to it. The trading implication means to either exit existing positions, or aggressively enter counter trend trades if other appropriate big picture conditions are in force. I have attached a chart highlighting these three conditions Conclusion ?There are many ways to apply these volume conditions in an overall day trading approach. If you start watching what happens to price after volume extremes are reached, I think this may open up a whole new way for you to classify price behavior in the context of what is unfolding in the market according to prices main role- filling big orders in the market according to the balance or imbalance of big orders that exists or, according to whatever market participant (buyer or seller) is displaying the most patience or anxiety at the given moment. Attachment: elite.jpg This has been downloaded 185 time(s).

 

 

austinjoe

Very good information. Thank you for posting!

amd2k

请问一下图例里面下面的那条线是什么indicator? volumn ratio? 能说明一下是怎么定义的么？

elecgene

Volume Oscillator ,maybe ,u can apply all kinds of indicator,e.g. KD, MACD, to volume too, then u will get a better picture of the trend !

amd2k

Thanks elecgene, it is very interesting information.