Volume leads Price. Always. And without exception.
In order to comprehend how the above statement (both in concept and in practice) represents a true and accurate assessment of market dynamics, a trader needs to understand the basic structure of all markets and how such markets operate. Since all markets represent a fractal nature, it turns out, Mandelbrot had it right all along. By correctly and thoroughly applying a framework, in an effort to ‘see’ the various fractals operating on a market, a trader can begin to see the Price / Volume Relationship at work – all day, every day.
Succinctly, unless and until the components of one fractal reach completion, the next slower fractal cannot begin. It trading terms, unless and until the Volume Cycle Sequences reach completion, the current Price Trend cannot end.
In general terms: if Volume is increasing, then the Price Trend is continuing.
Such is the essence of the Price / Volume Relationship.
Much debate has ensued over the years with respect to whether or not Volume represents helpful and / or useful information with respect to understanding Price change. In addition, those individuals who do find value in Volume analysis have long argued their viewpoint for the best methodology for divining the information from Volume itself. For those interested in continuing such discussions, I recommend reviewing the plethora of threads already in existence as I have no plans to engage in yet another long drawn out Lincoln-Douglas, Presidential or Academic style debate.
Rather than create yet another environment for posting opinions or sowing the seeds for epic battles over dogmatic philosophies, my goal here is to provide a framework, for anyone with an interest, to learn how to learn to ‘see’ the Price / Volume Relationship at work as shown through the fractal nature of all markets. In other words, this thread isn’t about me teaching people to trade, ‘calling’ trades or seeking converts to a new religious cult. This thread is about the individual trader developing the skills needed, and the knowledge required, to learn to trade based on what the market says, instead of what the trader believes (or I post).
So, what can one expect from this thread?
Over the next few posts, I plan to detail the fundamental building blocks used in order for a trader to thoroughly, correctly and consistently annotate a chart across three separate trading fractals. By learning to see the visual cues provided by Price and Volume (Trend Lines and Gaussians), a trader can develop the ability to see the Price / Volume Relationship at work. I expect a number of questions with respect to the need for me providing clarification on a number of posts moving forward. Everyone should feel free to post as frequently as necessary in order to completely comprehend the various aspects of The Price Volume Relationship as presented. I encourage active participation from those attempting to learn.
In addition, everyone can expect to see plenty of information which flies in the face of conventional wisdom and long held belief systems. Contradicting conventional orthodoxy and religious dogma, when it comes to individual trader beliefs, often creates an almost visceral response from those who feel (for some unknown reason) threatened by the mere discussion of alternative viewpoints than exposed in the mainstream literature. Again, I have no desire to debate the validity of that which I use to trade on a daily basis. Anyone who feels they ‘know best’ or simply considers the information already presented devoid of value, should stop reading immediately.
To reiterate, this thread will not teach you to trade. If you are looking for a canned set of rules for entry and exit, look elsewhere. However, this thread will teach you to learn how to teach yourself to trade using the only tools you’ll ever need – a chart and your own brain.
Lastly, the market speaks on every single bar delivering its signals to the trader in a timely fashion – and well in advance of the next trend. It turns out; one need not know how long a particular trend will last. One only need know the signals for when a particular trend has come to an end. As all trends overlap, where one trend ends, the next trend begins.
The basic principles involved in learning The Price / Volume Relationship require no more than a few paragraphs to articulate. The repeated and consistent application of those principles onto the market represents the bulk of the effort required of the individual.
To Be Continued ....
- Spydertrader
07-05-2009, 12:49 PM
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