I've been sitting on the sidelines watching this discussion about volume. The amount of "Volume" in this thread is a clear indication that there is considerable confusion about how to interpret volume in relation to price movement. I've read "Master the Markets". There is a lot of interesting stuff in there that needs to be better quantified. So far on this thread, I haven't seen much of that.
Perhaps we can begin somewhere by using Blowfish's comments about volume. Let's start here:
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Hi Tasuki, Friendly debate rather than throat jumping from here!  If I understand correctly what you are looking at is volume @ bid and volume @ ask. Red prints vs green prints from the tape......(volume on upticks vs downticks gives very similar results to volume@bid/ask too). |
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This is an interesting statement. It is not what Tasuki has said. Volume at the bid/ask is NOT the same as up-tick/down-tick volume. Let's be clear about this. As Tasuki has pointed out volume of any bar on a chart can be divided into two parts, DEMAND or BUYING volume which makes price rise, and SUPPLY or SELLING volume which makes price fall. This would be the same as ask/bid volume traded if it weren't for a small but very important fact. If you've ever watched the tape, you will notice that many trades occur at the same price before there is a new up-tick or down-tick trade. So what are these trades? Are they DEMAND trades or SUPPLY trades. We need a definition. A trade that takes place at the same price as the previous trade is a DEMAND trade if and only if the previous trade was a DEMAND trade. Similarly for a SUPPLY trade. In practice what this means is that you have to look back a sufficient number of trades to determine whether the present trade is to be considered a DEMAND trade or Supply trade. Looking at whether the present trade occurs at the bid or the ask doesn't hack it.
There is then no mystery about HOW MUCH SUPPLY trades there are in a WRB that closes near its high. You don't have to wait for the next bar to figure that out. Just dividing the volume bar up into its DEMAND component and SUPPLY component will tell you immediately.
Until there is some consensus here about how to determine DEMAND/SUPPLY volume, then anything else we have to say about
VSA will remain confusing.
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