[gabroo_munda]

Hi Everyone,

I am new to this stuff so please excuse this dumb question.

As I understand.....volume is the number of completed transactions (buy and sell). So can price go from one point to another without volume? To clear my point...lets say there are only 2 participants. I want to buy commodity A. I tell the seller that I'll pay $200. he rejects...and i up my offer to #300. he does not agree and finally i make an offer of $400. So now the price has moved from $200 to $400...without any volume as we did not do any transaction. Is my understanding correct?

Thanks

[atto]

In your example, you're offering higher and higher, but he can keep refusing forever. Price is simply the last traded price. Until a transaction takes place, there is no price.

[uexkuell]

Originally Posted by gabroo_munda »

I am new to this stuff so please excuse this dumb question.

Certainly an important point and not a begginers question in my view.

Quite frequently you can see price move with only very few volume (very rarely even without volume - this only in a not so liquid instrument when heavy news are appearing).

Anyway moves on low volume are to be noticed.


Unfortunately low volume moves can mean very different things and that's why people get confused using volume (and sometimes even refuse to use it).


Just as in your example. The person that refuses to make the deal can have completely different reasons for doing so:

1 "Commodity A is so valuable, I won't give it away for cheap."
2 "This guy desperately wants A, let's see, how far he will go! The more I wait the more anxious he will become to get it."

1 Is at the beginning of a move
2 Is at the end

Isn't this the same?
No, because "the end" may be quite some time and $ away.
If you ever entered into a trade at the last exhaustion spike and the spike extended for some time and hit your stop loss only to turn some time after you will know that mentally it is completely different.

[monad]

If you wish to trade a liquid market, then volume matters, not necessarily in your trading (as you could choose to trade via other technical analysis) but in the market place.

As to the periods in which prices keep rising on low vol, especially on slow grind up days, simple, sellers are not willing to sell, and demand keeps creeping up and vice versa. If sellers appeared in force, volume activity would increase, however price could still keep rising when buying pressure is greater than selling pressure and vice versa.

[BlowFish]

Just a small correction a transaction is generally known as a 'tick' or a 'print' (from the old paper tape days) this can be for more than 1 contract the volume would be the number of contracts/shares/units of currency traded on that transaction.

Markets can and do 'gap' (even intraday) thinner and more volatile markets tend to be more prone to it. You might want to have a read up on auction markets and bid ask spread (any time that's more than a tick wide you have a good chance of a 'gap'). Oh by the way tick in that context is the minimum price movement for the instrument. There's not that much Jargon in trading but worth getting to grips with the basics

[gabroo_munda]

Thanks for all your replies. It makes sense...

My next question will be....why do people get excited with volume spikes. If there is huge volume at a price bar....then all it means is sellers believe they cannot get a higher price....and buyers believe they cannot get a lower price. So as such high volume is meaningless as prices can either direction after this volume spike.

[rigel]

Spikes only mean brakes are being applied, that's all, markets can go sideways or momentum can carry the price beyond, but some like to consider this as automatic signals for trend reversals. especially "those who advocate that markets do not like up or down bars on high vol"))

[DbPhoenix]

Originally Posted by gabroo_munda »

Thanks for all your replies. It makes sense...

My next question will be....why do people get excited with volume spikes. If there is huge volume at a price bar....then all it means is sellers believe they cannot get a higher price....and buyers believe they cannot get a lower price. So as such high volume is meaningless as prices can either direction after this volume spike.

That's true, and my congratulations for consolidating all the remarks in a way that makes sense for you.

Why do people get excited about volume spikes? Greed or fear. Amateur traders see volume spiking and think Oh God I'm Missing Something, and they try to jump on -- or out of -- a speeding train. Sometimes that volume can propel traders to a new level. Sometimes, at least in an upmove, it's pure distribution, and when new buyers find they have no one to sell to, price can plummet just as fast as it rose.

Part of the problem with regard to discussing price and volume is that not everybody is talking about the same thing. And some people think that definitions don't matter. But they do. And if one is going to think clearly about what's happening in front of him, he needs also to be clear about the language he uses to describe it, even if that language is purely internal.

Some people will say, for example, that they don't use volume, that volume is not important, even that volume is useless. But without volume, that is, trading activity, there would be no transactions and hence no price movement. That in itself makes volume important. What is often meant by statements like these is volume as an indicator, particularly a color-coded indicator, and those who feel that this sort of volume is pretty useless may have a point.

There is also the matter of volume as trading activity (which is how Wyckoff looked at it) and volume as "intent", which is essentially what bid and ask "volume" are about. But the trader who trades according to what people intend to do may not make the same decisions as one who trades according to the transactions that people are actually making. I may intend to sell the strawberries in my refrigerator for $100 a pint, but nobody's going to give a damn unless somebody actually meets my price and we conclude a transaction. That then becomes the price.

But is it the correct value? And mixing price with value is another area where traders tend to trip themselves up. Going back to your first post, a trader may have shares that he thinks are worth $10. But he can't find a buyer who thinks they're worth more than $5. The seller's price is $10 because that's where he's placed their value. The buyer's price is $5 because he's placed their value at that level. But that doesn't make either $5 or $10 the "price". The price is determined through negotiation until there is an agreed-upon amount, maybe $7.50. And if the two parties conclude their negotiation, the transaction takes place and $7.50 becomes the price, even if only for a few seconds.

Therefore, if intent matters to you and you believe that bid and ask "volume" truly reflect intent, then the bid and ask volume may be useful to you. But none of this has anything to do with the volume that is trading activity which in turn is the result of actual transactions which in turn result in prices that are printed on the "tape".

If there is no transaction, there is no volume, and everybody just stands around holding hands. Once a transaction takes place, then you've got something concrete, a benchmark to go by, and some clue as to the action you should take.