[Flojomojo]

Originally Posted by Flojomojo »

Price breaks again but obviously has a tough time breaking the low set at 2 where the first demand showed up. Sellers push down price to 700 making a new low (This is the time we can draw trendline T1) but this time again demand overwhelms demand.

Sorry for any confusion...last word should be obviously 'supply'

[jcavalieri]

im sure DB will explain it in more detail than myself but whats happening when you see volume surges as price rallies is the large players are dumping some of the supply they had accumulated earlier in the process. they do it as price is rallying because they know this is causing the herd to become greedy and they will be buying in fear of missing out. The herds buying creates the liquidity the institutions needs to dump off the large amounts of supply they had accumulated without immediately stopping the up trend..although when the institutions are selling and you see this volume surge in an up trend you can be sure the trend will be ending shortly. As for the volume surge during the down trend what is happening is exactly the opposite. the market is completely bearish and the public is panic selling thinking the stock is going to zero. The institutions, however, realize the end of this down trend is near and absorb all the supply the public just threw on to the market at discounted prices. The down trend may not immediately end after the surge but soon price will form a range and the process of accumulation begins and starts the process all over again.

[AgeKay]

Originally Posted by jcavalieri »

im sure DB will explain it in more detail than myself but whats happening when you see volume surges as price rallies is the large players are dumping some of the supply they had accumulated earlier in the process. they do it as price is rallying because they know this is causing the herd to become greedy and they will be buying in fear of missing out. The herds buying creates the liquidity the institutions needs to dump off the large amounts of supply they had accumulated without immediately stopping the up trend..although when the institutions are selling and you see this volume surge in an up trend you can be sure the trend will be ending shortly. As for the volume surge during the down trend what is happening is exactly the opposite. the market is completely bearish and the public is panic selling thinking the stock is going to zero. The institutions, however, realize the end of this down trend is near and absorb all the supply the public just threw on to the market at discounted prices. The down trend may not immediately end after the surge but soon price will form a range and the process of accumulation begins and starts the process all over again.

I find it funny how everybody thinks it's the institutions/big players/smart money against the public where the institutions take all the money from the clueless public. Don't forget that more than 80% of volume comes from "institutions", of which about half or 40% lose money too, it has to be, since there is a loser for every winner.
I've also read that many limit order studies that conclude that institutions provide most of the liquidity through limit orders while the public uses mostly market orders, so "the herd" does not create liquidity that the big traders can use to dumb their accumulated stock. There are many smaller and bigger traders that trade all the time and one side does not all of the sudden decide to do one thing while the other decides to do the opposite. They all have different time frames, profit targets, and strategies. Some use limit orders only, some use market orders only and some use both. The whole story about greed, fear, herd, panic selling, public vs. big traders is way to simplistic

[AgeKay]

To answer the question of the thread opener: Volume does not drive price. Two-way liquidity supply (limit orders) vs. liquidity demand (market orders) drives price. You can have a huge amount of volume in form of market orders on one side but the price won't move until all the limit orders are matched. You might even see a lot more buy market orders than sell market orders, and price could still go down because in that case there would a lot more offers than bids that keep the price from going up.
I suggest that you learn how price discovery/order matching works to understand what drives price changes.

[Head2k]

I really liked one particular definition of who the "smart money" is. I believe I read it in Master the Markets. Smart money is that which stands on the right side of the price movement That is the only definition I am willing to accept.
I think the whole concept of the smart money is built on human need to personify. In this case, personify an enemy or somebody worth following, respectively. It doesnt really matter who stands behind supply, demand and volume.
But the concept of buying and selling climaxes is logical with or without smart money.

[AgeKay]

Originally Posted by Head2k »

I really liked one particular definition of who the "smart money" is. I believe I read it in Master the Markets. Smart money is that which stands on the right side of the price movement That is the only definition I am willing to accept.
I think the whole concept of the smart money is built on human need to personify. In this case, personify an enemy or somebody worth following, respectively. It doesnt really matter who stands behind supply, demand and volume.

Yes. I absolutely agree.

Originally Posted by Head2k »

But the concept of buying and selling climaxes is logical with or without smart money.

Could you please elaborate what you mean by "buying and selling climaxes"?

[Head2k]

Originally Posted by AgeKay »

Could you please elaborate what you mean by "buying and selling climaxes"?

Those buying and selling surges that cunparis was writing about. A selling surge might be called a potential buying climax. If you have an established uptrend which is speeding up, that means increasing inbalance between supply and demand. There is increasing number of people willing to participate in the up move or/and less people willing to sell (they hold). Volume represents both sides of trade - both buyers and sellers. If volume spikes up on a wide range up bar which closes well off the high it means that this buying frenzy encountered heavy supply. The problem is that there are only little potential buyers left, because almost all of them already bought. So there is very little support for the price. If the supply is big enough and timed well, it swamps the remaining demand and as price has only a little support it can plumet down quite fast. Or at least stop the up move and move sideways.

Vice versa for selling climax.

[AgeKay]

Originally Posted by Head2k »

Volume represents both sides of trade - both buyers and sellers. If volume spikes up on a wide range up bar which closes well off the high it means that this buying frenzy encountered heavy supply. The problem is that there are only little potential buyers left, because almost all of them already bought.

This is a contradiction. How can almost all of them have already bought when there was heavy supply.
This and the following text of yours actually sounds very similar to the story I criticized earlier. You're trying to explain what might have happened after the fact, but the fact is you don't know (neither do I or anybody else unless you look at the actual time & sales). It's all just speculation unless you look at the actual trades. Candles/bars are just a summary of price movement that condense trade activity into 5 pieces of information: low, high, open, close and volume. Price could have moved up and down within one candle/bar 100 times (which might be the reason that there is a lot of volume), but it would look exactly the same like another candle/bar that went up straight up.
Also don't forget there can only be a lot of volume when there is both a lot of supply and demand, because if there was not a lot of supply then price would just move up on little volume.