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Please correct me if I'm wrong, isn't the volume shown there just at bid or ask? Red if at bid or green if at ask? And if that's correct how reliable do you think it is to expect that an order at bid was a sale and at ask was a buy? |
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OK, MC, I'll be happy to correct you. No, this is not bid/ask volume. Rather, these bars are created from the Time and Sales data, which just represents actual sales, not bids and offers. In a standard T&S window, there are two colors, red and green. The bars in my upvolume indicator simply tally up the number of contracts in each sale that's green on the T&S, and the bars in my downvolume indicator simply tally up the number of contracts in each sale that's red on the T&S. The only novel thing I've done is to arrange my Tradestation indicators so that the upvolume appears inside the downvolume on the same bar--it just gives you a handy way to look at the difference between buying and selling, or to be more accurate, selling on the offer and selling on the bid.
The green represents selling at the offer price, i.e. selling as price is going up, which means that the buyer is buying when the price is going up, which means that the buyer is "paying up" because he expects the price to go up even further. In other words, the green represents buying pressure.
The red represents selling at the bid price, i.e. selling as the price is going down, which means that the seller is selling at the lower price (the bid price is always lower than the offer price) because the seller expects prices to go down even further.
If you look at the up vs down volume for a while, you will convince yourself that this is not "smoke and mirrors" (as bids and offers often are when they don't result in actual trades), and I think you can also convince yourself (as I have) that this information is very valuable.