Average Volume Question

[dalby]

i would disagree that technicals take less importance at climactic times/emotional etc.

imo, TA is, to a large extent, the study of aggregate trader psychology.

psychology is always an element of TA, and price is ultimately an opinion reached by two sides of every trade.

i think like TA in general (where one looks at various timeframes), volume and volatility needs to be considered in that context.

iow, for shorter term trades, the volume needs to be compared on a shorter time frame.

and for longer term trades, not so much.

this reminds me of the old trader joke, your broker calls and says "the bad news is your account is on margin call and down 50% of its equity. the good news that it was on low volume"

i don't think anybody should use volume and of itself to predict ANYTHING. that's true of market profile, of indicators in general, etc.

it's a matter of synthesizing information.

volume does matter (clearly) imo.

[brownsfan019]

	Quote:	walterw
	I think brown you are missing something there... and is the fact that a volume surge can also spot an extreme... once that happens you must re-start the reading of volume from the most inmediat context (volume levels) (actually this thread topic)... now this is not for newbees it takes screentime to read this... I am not that expert must confess... cheers Walter.

Walter - I understand the premise behind what the volume is possibly saying and how that can be interpreted, but did my chart example just show that 5 out of 7 times the 'extreme' was simply that the current up-trend took a breather only to resume the trend? I don't see how the chart showed us that the volume surges spotted an extreme. 5 out of 7 times it reinforced the strength of the trend. To me, an 'extreme' would be a major reversal zone and in this chart, the surges in red were anything but a reversal area. Yes, it could have been traded on the short side for a profit if you were able to exit timely.

We can both put our 'side' into words, but I think a chart is much more powerful since it is what it is. Taking a look at my annotations, would you agree that 1) there was a red volume surge and 2) if you assume a red surge can lead to a downmove that this did in fact fail 5 out of 7 times?

I realize it's easy for me to do this in hindsight, but I'm hoping to provide another side to the argument b/c it can be very dangerous when people in a forum all think the exact same way, esp any newbies reading this. The last thing a newbie should do is read this thread and start trading based on a red/green volume surge. I am attempting to explain here that the surges in our example at best signified a pause from the overall trend.

[walterw]

Brown : you cant take into acct the green or red color on the volume histogram, that is just the relationship between open and close of the day (1 bar) , you have to relate pivots of price action going up or down, can you take a look at the bars between 3 and 4 ?.... you will notice price was going up while volume was going down... then inside 4 you will notice a nice drop (large bar) with high volume, we can consider that a volume surge or "selling climax" wich stalls the down move... notice price starts going up and volume on the next days also goes up... thats bullish you will then notice that from PIVOT TO PIVOT volume talks... maybe what you are missing is the reading from pivot to pivot.... (not each bar) hope that helps cheers Walter.

[Nick1984]

	Quote:	walterw
	browsfan : from an intraday aproach its ok what you say, now its interesting to see sometimes the big picture too... and volume has a lot to say on this big picture... it even told us that there was an inminent downmove as there was no more important volume on the previous top up moves... I dont know if you looked this video http://www.traderslaboratory.com/for...lume-1286.html it can be very usefull to know in witch overall context your small intraday trading can be (I trade a 22 tick chart, very small trading) but now I take into acct this daily context information, I can know more the general bias of the market... cheers Walter.

clicked on the link, can't watch the video!?!

[walterw]

ooops that video is for premium members...

[Nick1984]

and how does one become a premium member? Sorry for hijacking this lol.

[Soultrader]

*BLING*



Every now and then I go through the member list to see how many posts, activity on board, time spent on board, etc... I boost accounts up that are regular participants on the board. I havent done this last month so will need to spend the weekend going through this.

[Nick1984]

yay!

[TheBramble]

	Quote:	Soultrader
	Since the the tumble of the indexes we are experiencing higher volatility and higher volume. The question is: Should traders consider the current volume as the norm? For example, today's rally on the YM occurs on a lower volume bar compared to the last 5 trading sessions. HOWEVER, this volume bar is well above average comparing the volume bars for the past few months. How would you view this?

The correlation between Volume and Volatility obviously needs a context within which to test the correlation. The real trick is deciding how much of a timeslice you're going to use to set that context.

Soul, you're asking two questions: Is current Volume 'the norm'? Yes, it is for now. Does it have historical similarities? Yes it does. Will it continue uninterrupted and unchanged? Unlikely. So regardless of recent (relative) Volume, the technical basis for assessing Volume's likely interpretation with regard to its recent history and to price movement and Volatility (which I take as Low to High, not Close to Close) remains the same.

Your second question regarding how to view the specific instance of YM activity leads to a number of possible answers. The first being a question itself that when you get an uncharacteristicly vibrant price move on relatively low volume what can that indicate? And that this move occured on relatively low volume (within the last 5 days view), but within the context of the last 5 days Volume being much higher volume than previously leads to an obvious conclusion. I'm posting this a few days after the event so I obviously don't need to explain further or imply any foreknowledge of that conclusion.

The issue of Volatility and Volume is one I have spent quite some time researching and I did publish intermediate results from this on another site, but in essence, and very specifically in relation to this quoted post, you have to consider what is it that causes the daily range in any instrument to behave the way it does? And what does it 'mean' if this larger/smaller than usual range occurs on higher/lower than normal volume? And how do these clusters of higher/lower Volatility and higher/lower Volume relate to each other?

Basically it's a game of Who has been 'convinced' by Whom of What? People take action based on their understanding of what's going on. It's their understanding that's key to subsequent market action and generally quite unrelated to what is really going on.

I think I've only scratched the surface and probably not added too much to the initial query, but maybe it's a start.



btw - only just joined today and after a gentle stroll through the site there appears to be some really high quality posts and posters around. Good work.