[Volume Based Candles] and how to profit

[brownsfan019]

	Quote:	MrPaul
	Brownsfan, Really enjoying this thread..how did you intially come across volume candles, any educational resources out there?

Paul - you know, I first learned about them at elitetrader. That site is mostly garbage, but there are some nuggets if you spend the time reading. I honestly never thought I would get much from a site like that, but one friendly trader brought it to my attention in one of my threads and since then, I just started studying and reading about it.

As for books or other stuff, I have not found ANY. Perhaps a mention in a book or something, but nothing really dedicated to it. I have given some thought to writing something up about it down the road.

If you are interested in the et thread, here's the link - http://www.elitetrader.com/vb/showth...&highlight=odd
Keep in mind that as normal over there, the thread delves off into childish name calling and such; BUT there is some good info throughout, esp at the beginning.

[brownsfan019]

	Quote:	Robert2617
	I am enjoying this too! It's like a light bulb just turned on! Q: What are you trading? A: Shares and Contracts Q: How are they measured, Time or Volume? A: Volume Q: What kind of chart should you use, Time or Volume? A: VOLUME! hahahahaha I love it! Now I just need to figure out (1) how to determine what size volume bars to use and (2) how to read candles! I guess the volume bar size that you should use needs to correlate to price movement of the instrument somehow. ie. How much volume causes the price to move. I'm going to start reading about and studying this right now. I think this may be the golden ticket. Thank you for pointing me in this great direction. ::EDIT:: Go Browns!!!!

Robert - you just went thru what I went thru when I first learned of them. You have to keep an open mind, but WOW they can really improve your trading.

As for reading candles, get Steve Nison books. He's the best and is the candle 'godfather'. His site is http://www.candlecharts.com/. When I got into candles, I got ANYTHING from him I could get my hands on. I have most/all his books and DVD's. I highly recommend the DVD's. I am more visual, so a book only did so much. I've gone to one of his live seminars and while it wasn't cheap, it was well worth the cost of admission. He also now has a MarketScan which is pretty slick. He puts out a newsletter too, so make sure to sign up for that. Maybe some of you could go in on the DVD's to share the costs ... if someone has a DVD burner...

FYI - I am not a shill for him, just a very happy customer.

As for the size to use, it's really up to you. The smaller the number, the quicker things move, so you must be nimble if trading on a smaller number. A smaller number would be under 500 on the YM in my opinion. As I mentioned, don't fret about the actual number. There's not much difference in a YM chart with 300 and with 400 as the setting. It's really a matter of how quick do you want the candles to print - just like a minute chart. Play with some settings and see what you like. The key is to do this in real-time!!! It's easy in hindsight to say that you would have taken a hammer, but what you may not be seeing is that the hammer formed in 30 seconds and you had about .5 seconds to make your decision to go long.

Bear in mind guys, when these things are printing, there's no time to be messing around.
You have to act and act quickly.
This is part of the reason I don't spend much time in the chat room. I just can't watch 3 charts, execute my entries timely and chat.

One last note - I mentioned this to MrPaul in a PM, but I want to mention here - if you use candles in traditional analysis, be prepared for rough days in trending markets. The candles in traditional analysis are meant to signify the possible end of a trend, which work great in markets that move up and down during the day. In a strong trending day (like the 500 pt day on the dow) you are going to take losses and possibly many of them depending how many times you want to fight that trend. While that is not easy on the psyche, over time, there's money to be made in the market using candlestick analysis.

As Nison likes to say... May the candles light your path to succesful trading (or something like that).

[TinGull]

Here's a chart of todays action that I followed along with. It's a 764V chart. Why that? Well..I couldn't remember fib numbers off the top of my head and this is what I came up with. Oddly enough, I see clearer signals from this chart looking back over a couple weeks than I do with one based on a fib number.

The blue arrows are pointing to haramis and the red arrow is an engulfment.

Simple, straightforward.

[Anonymous]

BF: I'm a Broncos fan, but that doesn't mean I can't be a fan of yours

Would love to see some charts.

Also have a trading 101 question: What is the difference between a tick chart and a Volume Chart?

VSA tells us that volume=activity and thus tick based volume works where actaul contract volume is not offered. Do you believe the same?

The Russell doesn't release volume during the day, only tick volume, would you thus not trade that market or just use ticks?

[brownsfan019]

	Quote:	TinGull
	Here's a chart of todays action that I followed along with. It's a 764V chart. Why that? Well..I couldn't remember fib numbers off the top of my head and this is what I came up with. Oddly enough, I see clearer signals from this chart looking back over a couple weeks than I do with one based on a fib number. The blue arrows are pointing to haramis and the red arrow is an engulfment. Simple, straightforward.

One thing I was going to recommend Tin was to post what the volume setting is at to put things into context.

Now, to help everyone understand that candles are NOT bulletproof, I attached the same chart of tin and highlighted all candle patterns that I saw. I did not take into account the indicator at the bottom, just pure candlesticks. I did this not to put a damper on this party, but to show that while candles are extremely good at finding ends of trends, they also sometimes can put you into a trade a little soon (early to the party as I like to say). Which then leads to the discussion of where and how do you place your stops if trading off candlesticks... Perhaps another thread discussion altogether.

I want to bring your attention to the part I highlighted in purple. The reason is that you see you first get a hammer (long signal), hanging man (short signal) and then another hammer. I bring this up to point out that if you take the first hammer - end of a little downmove and looks like a double or triple bottom (note the first two hammers that failed in my opinion) and right after you enter, you get a candle formation that is opposite of a long trade - a hanging man, and then right after that you get another green hammer and IF you are still in your long, you made some money.

One last thing - and Nison says this a lot to - candles do not provide a profit area/target. As you can see in the chart that tin and I posted, you can see patterns that went for points and others that didn't do much. That's the other part of the equation - where and how do you exit?

Again, I am not trying to convince you to stop researching this, I simply want to point out how these can work in real time. It's very easy to say that you would take the hammer or engulfing at the bottom of a trend, but there's also other hammers, engulfings, etc. that appeared in that same move. Why would you not take those?

Like I mentioned Tin, I think the actual number being used for the volume bar setting is irrelevant. If you want a quick moving chart, use a smaller number; vice versa for a longer term chart.

[brownsfan019]

	Quote:	PivotProfiler
	BF: I'm a Broncos fan, but that doesn't mean I can't be a fan of yours Would love to see some charts. Also have a trading 101 question: What is the difference between a tick chart and a Volume Chart? VSA tells us that volume=activity and thus tick based volume works where actaul contract volume is not offered. Do you believe the same? The Russell doesn't release volume during the day, only tick volume, would you thus not trade that market or just use ticks?

BRONCOS???

Forget it, I am out of here.

Do you know what Elway and the Broncos did to my Browns in 86??????? I practically throw up every time I watch 'the drive' on ESPN. That was the LAST time the Browns had a competitve team!!!!!!

That changes things.

:mad:

[brownsfan019]

	Quote:	PivotProfiler
	Would love to see some charts. Also have a trading 101 question: What is the difference between a tick chart and a Volume Chart? VSA tells us that volume=activity and thus tick based volume works where actaul contract volume is not offered. Do you believe the same? The Russell doesn't release volume during the day, only tick volume, would you thus not trade that market or just use ticks?

Ok, that was a joke. Thought a little humor would be good here, it's getting a bit stuffy in here. :p

Charts - I will try to post some, but what may actually be better is what I did with Tin - post a chart and I can screenshot it and annotate my thoughts so you can compare with yours. Just an ida.

Tick vs. Volume - A tick chart moves when there is a tick. I don't care for tick charts b/c if the market moves up a tick based on a handful of contracts traded, I am not interested. I want to see and KNOW there is volume being traded there, not just a random tick. A volume chart only produces a new candle when XXXX contracts trade - whether that is a couple ticks or not. I guess it depends on what you consider important - any and all movements or volume. For me, it's volume. I view a tick chart similar to a minute chart in that you can trade off both of them, but for me, a volume chart speaks volumes that those charts cannot.

ER2 - not sure what you mean, I use volume based charts there just like all the other e-mini's. At least, that's what TS is showing me. HOWEVER you bring up something that makes sense to me... My TS charts on the NQ and EC (CME based contracts) NEVER match the volume I see on my T4 trading dom; but my YM (CBOT based contract) matches perfectly to my trading dom... Can you provide more info on what you mentioned? Any links to the CME and/or CBOT that explains your statement more? Thanks!

[Anonymous]

That is just what I heard. I do not trade it and could certainly be wrong.

P.S. I wasn't going to mention THE DRIVE to spare your feelings, but since you brought it up....It's on!!!!!

Don't be surprised the next time we are having an agrument if I don't just utter those two beautiful words. LOL

[Robert2617]

At this early stage of my recent volume candle enlightenment, I have come to the conclusion that volume candles are the most accurate v/s all other types of chart reading.

I now believe this because volume candles equalize each bar's importance. With "VCs", no bar means more or less than the last or the next. They just tell a story. A story you can trust because you know what each VC represents.

With time or tick based bars, you don't know the importance of any bar. You don't know how much emphasis to put on any bar or pattern. You can't trust them. You might as well use a line.

Now there are other indicators that may quantify volume but none will be as accurate as the VCs because VCs are the indicator!

Most importantly, it evens out the chart. It doesn't matter what volume interval you use because whichever interval you choose, all bars represent the same.

Wow, this is deep. I think this just saved me about $25,000 or more. I'm a total believer. It's so clear to me now. Thanks again. Wow, that all I can say. Wow...... :rolleyes:

[MrPaul]

I'll throw my two cents in here and give an opinion and an answer. In my opinion the time frame used 764v is much to myopic a candle length to lend an edge using traditional reversal/continuation candles. Brownsfan brought up an interesting question where he wrote... "where and how do you exit?". I utilize candlesticks not so much for patterns in a cursory manner but for gauges of supply and demand.

Therefore my exits are completely designed around change in that way. As soon as my mic comes in it should be easier to explain though a video but for now I tried my best with a chart. Nison is absolutely correct when he says candlesticks don't offer profit targets but they do offer something much more logical and relevant, a portrayal of momentum/sentiment shift between market participants...

Let's look at a 10min YM chart (the same day as Tin posted).

A.) A half hour into the trading session price forms a shooting star candle indicative of supply (and more importantly in some cases trapped late buyers)

B.) After the Shooting star a doji forms displaying indecision and momentary equilibrium. This is where I start thinking very hard about selling price, logically if price cannot find buyers at it current level or above it it will auction lower in search of sellers. What we need here is a trigger, a signal that can mechanically verify that the odds are price is going to be trading lower.

C.) that trigger/signal comes in the form of a candlestick close below the low of the shooting star. Selling on the close of that bar.

D.) This candle could be used for a more conservative play for the close below the last indecisive point (doji).

E.) Notice here that although price trades up and down it's *close* is always below that of the last candle. Lots of tight stopped traders got shook out during the leg down displayed by the wicks. That what I look for with sell momentum continuation, lower *closing* lows.

F.) At this juncture price has capitulated and volume has risen dramatically (relative). Price has found demand indicated by the lower wick and now any signs of strength or indecision is an exit signal.

G.) As we can see now indecision has entered the marketplace by price and volume made like Elvis and left the building. In a perfect world we could all pretend that the lows were covered but in reality anywhere between 12220 and 12205 is an area where you have confirmation that in all likelihood the leg has finished it's run down.

So we have an initial stop above the highs @ 12285 after a signal to sell @ 12265 (20 point risk/contract) with a conservative estimate of gain near (40-50 points/contract) after we exit.

The thing about using larger charts with candlestick analysis is that you are going to get more valid signals, and you can mechanically enter,exit, and set risk.

Once again everyone has their own way to trade and that's the best there is for them, I just wanted to throw out an example of how I think when I am watching price trade.