[Head2k]

Thank you for listing me among those who "who understands the dynamics..." but my understanding is far away from the other mentioned people. I just wanted to tell you that I had almost the same problem as you, and to large extent I still have it. And I believe the solution to your troubles lies in understanding Support and Resistance (and maybe Trend as well). I suggest you to study Db's interpretation of AMT.

To elaborate, your problem is that you think of price and volume action only in little context. Price and volume action has no meaning if you don't consider where it is happening, what happened there before and what happened (even elsewhere) in recent past. It is easy to say it like this but it is hard to understand what it means, or how to interpret the context and price/volume action within it.

I suggest that you stop thinking about price/volume action and start thinking about behavior of traders (bulls and bears). Think of what they are trying to accomplish, what effort they put in to accomplish it and how they succeed. Compare their behavior now to their behavior in past. Did they accomplish what they wanted? If they didn't succeed it on the first attempt, did they give up? Or are they trying again? And if they are, is their conviction stronger? Is it weaker? And again, how they succeeded?
Understanding Support and Resistance tells you what there is to be accomplished and helps to make the shift from "watching price dance" to watching the push and pull, or effort and result. I know that what I wrote is quite abstract, but give it a thought.

Now to your questions:

1) Why is increasing volume on rallies a positive thing?
It is positive if bulls showed their conviction, bought all there was to sell and kept price advancing. I underlined the important thing. Both buyers and sellers are becoming more active if volume is increasing, but the result is important. And again, this is not the whole equation. One also needs to ask why there was more to sell and what bulls accomplished with this rally. What they got through, if anything? Where they stopped? How they stopped, or were stopped? The result in the "effort and result" relation is not only that "price advanced", but much more.

2) Bullish vs. Bearish Springboards
I'd say that a springboard is not the consolidation (acc. or dist.) as a whole, but that it is one specific moment near its end. It is a point where one side finally gives up (IMO it doesn't need to be the same moment where the other side aggressively takes over). To tell the accumulation from distribution and to notice when price is on a springboard one must know where this consolidation is taking place (in relation to S/R), and watch what is the effort vs. result at or near its edges. What are bulls and bears trying to accomplish here? How hard and how many times they try? How they succeed? What is the response of the other side?

3) How can you tell the difference between low volume indicating a change in direction and just a pause in the current move?
Again context. And Effort vs. Result. If price is at R where we witnessed a climactic action before, a low volume reversal indicates a lack of buying pressure. But after the same climactic action, if there is clearly no interest in lower prices and then price approaches the R on low volume and there is no or only little response from bears, it might mean they withdrew.

4) Overbought / Oversold
I am not quite sure, but try Trend thread. I believe W used trend channels to tell these positions. But there is no magic. Simply if price moves too far and too fast from its value, then it is in oversold or overbought condition. Assuming that is doesn't take the value with it. The value can be static (horizontal zone) or moving (channel).

I hope my observations might help you a bit, although I am only a beginner like you. If somebody more experienced wants to elaborate I will be only happy.

[jcavalieri]

with increasing volume on rallies and decreasing volume on reactions would that not indicate that buying waves are attracting more of a following than selling waves as bears hold on for higher prices indicating the path of least resistance is upwards? or is that what you were saying head and i just misunderstood

[Head2k]

Originally Posted by jcavalieri »

with increasing volume on rallies and decreasing volume on reactions would that not indicate that buying waves are attracting more of a following than selling waves as bears hold on for higher prices indicating the path of least resistance is upwards? or is that what you were saying head and i just misunderstood

That's not what I was saying but it's true. Though I wouldn't use the term "path of the least resistance" but rather path of more interest. Traders are more interested in higher prices. Then it depends if price actually makes new highs, that is whether we are getting those higher prices. That tells you whose interest is stronger.

[innovation]

Thanks for you reply Head, I appreciate the effort and I will indeed give your advice some thought. Unfortunately at the moment things are not much clearer to me as a result. I think I do understand S&R and trend and indeed do try to look at the market for what it is, a mass of buyers and sellers (bulls & bears, buying pressure & selling pressure) not at individual 'bars' or arbitrary samples of market action. I have read and digested DB's recent post on AMT.

As far as context is concerned I do attempt to look at unfolding action in context but find it is hard to know what is enough context and what is superfluous. In fact this leads me back to my original post where I end up formulating several mutually exclusive scenarios each of which (in my mind) are equally likely - take for example price testing resistance for the 3rd or 4th time (within a relatively small time frame): One could view this as bullish as price was obviously not successfully rejected on the last attempts and the bulls/buyers are liking their chances of moving past R once all the supply has been absorbed. One could also view it as bearish as each attempt to break through R has failed and the bears are taking the opportunity to distribute at the best price, once they have sold their line they would apply more selling pressure to see lower prices.

Originally Posted by Head2k »

... Did they accomplish what they wanted? If they didn't succeed it on the first attempt, did they give up? Or are they trying again? And if they are, is their conviction stronger? Is it weaker? And again, how they succeeded?
Understanding Support and Resistance tells you what there is to be accomplished and helps to make the shift from "watching price dance" to watching the push and pull, or effort and result.

How can you tell if their conviction is stronger? more result in less time?
"How they succeeded" - surely by then it is too late to hope to profit from the success?

Originally Posted by Head2k »

1) Why is increasing volume on rallies a positive thing?
... One also needs to ask why there was more to sell and what bulls accomplished with this rally. What they got through, if anything? Where they stopped? How they stopped, or were stopped? The result in the "effort and result" relation is not only that "price advanced", but much more.

I must admit that I had just been thinking that "price advanced" was the result, how though can we hope to determine how they stopped or were stopped & what difference does it make to the bigger picture?

Originally Posted by Head2k »

2) Bullish vs. Bearish Springboards
... To tell the accumulation from distribution and to notice when price is on a springboard one must know where this consolidation is taking place (in relation to S/R), and watch what is the effort vs. result at or near its edges. What are bulls and bears trying to accomplish here? How hard and how many times they try? How they succeed? What is the response of the other side?

Could you give an example of your thought process? I end up going round in circles

I must point out that I was playing devils advocate in my original post, trying to come up with a logical counter for the 'accepted wisdom', perhaps I might benefit more if someone could explain why this could not be the case.

Once again thanks. I am determined to get to a point where I have an intuitive feel for the push and pull of buying and selling but I am beginning to see it might take some time

[jcavalieri]

i think we need to solidify the definition of buying and selling interest and buying and selling pressure. interest is defined by amount of activity therefore if volume is high, interest is high for both buyers and sellers. what determines whether prices rises or falls is the amount of buying or selling pressure. correct? also where is DB's post on AMT located?

[jcavalieri]

" I must admit that I had just been thinking that "price advanced" was the result, how though can we hope to determine how they stopped or were stopped & what difference does it make to the bigger picture? "

if your observing a buying wave that has just cleared a prior hi and making its way up to a higher hi and you notice that volume is contracting and price is losing momentum you can infer that demand is lessening because being that price is at a relatively high price supply should be readily available. so the low activity and loss of upward momentum suggests less demand to fill up all the supply and therefore supply is overcoming demand and a reversal is likely.
on the other hand, if your observing a buying wave in the same situation, but this time volume is expanding and result in price is getting less. and on continued expansion in activity price reverses sharply to the downside you can infer that supply was beginning to overcome demand and did eventually completely. so the rise was attracting increasing interest from buyers and sellers and at a high enough price demand was no longer able to absorb the increasing supply.

[Head2k]

Originally Posted by innovation »

... take for example price testing resistance for the 3rd or 4th time (within a relatively small time frame): One could view this as bullish as price was obviously not successfully rejected on the last attempts and the bulls/buyers are liking their chances of moving past R once all the supply has been absorbed. One could also view it as bearish as each attempt to break through R has failed and the bears are taking the opportunity to distribute at the best price, once they have sold their line they would apply more selling pressure to see lower prices.

Ok, so here is an example. Lets have a look at consolidation at resistance. 1200 +- a few points is an important S/R zone and price approaches it from below.

Here is a chart showing why 1200 is important.



Here is a 5 sec chart of the consolidation (approx. the same moment in time as the previous chart):



The thick red line is the S/R level. But in this case it is old and tested many times, and the S/R is more a zone +- 5 points around this level. There is also a trend line of an intraday up-trend which took us to this R. Last swing high before the consolidation is 1199.25 and it is not visible on this chart.

As price approaches there is a burst of volume (0) as it gets through 1199 (green line). Apparently there was some resistance, but bulls didn't care - they just shot through it and price continued easily after that, so bears withdrew.

Now notice the price / volume spike (1). Bulls' effort was quite big and so was the price advance (result). But what happened then (2)? Where have the buyers gone? Are they just having a rest or are they done? And what about bears? Are they ready to sell as soon as they spot this weakness or are they holding back because they think it is too cheap yet?

What happens next is obvious. Bears push and bulls are not able to oppose. Notice how fast price got back and what effort did it take (= also what effort bulls put in to oppose the move). Also notice volume between (0) and (3). It is definitely the highest concentration of volume on the chart. Could it be a climax? Or was it just a healthy push through R and a pullback?

At (3) it is aparent that price is not ready to decline substantially yet. Another test of R is likely. Or wait a minute - maybe we just witnessed a retracement after a breakout? There is not enough information to judge that IMHO.

Price then advances without much effort spent, it slows down and then wham (4) - supply. But notice that is didn't drop much after that burst either. Then it is supported higher than before with almost no effort. It looks like both bulls and bears need to think for a while. At (5) bulls try again but the rally is checked in the very beginning, and bulls didn't continue pushing. And then again, support is found at the same level as before and again it costs no effort to support the price there. This is one big indecision. Now bulls see that bears aren't willing to pull lower so they try again to push higher. They manage to go higher by 2 ticks (but not higher than the "climax") but then the same story again (6). Notice how fast price returns into that 1 point range. And notice how bulls try 2 more times immediatelly after that (soon after (6)) and at each of these attempts they give up sooner and sooner.

So is price ready to fall yet? May be. But notice we are still above 1200 and above trend line. This whole action might be just resting, or forming another stairstep in uptrend. By the time price gets to trend line it is at 99.50, one tick above the last swing high. Price breaks the trend line slightly but it finds to interest below the last swing high (7). Then supporting points are lifted on almost no effort. Rally attempts are checked at 1201, bottom af the last one point range. 1201 appears to be a midpoint of the consolidation and you can draw the yellow line if you want. Price then narrows into 2 tick range (before (8)). At (8) and (9) bears try lower, but there is no force behind it, price finds higher support and easily returns. At (8) and (9) I would say that price is on a springboard (for up side). So now it's bulls' turn. And they come. Notice volume between (9) and (10). Somewhat high but nothing extraordinary. But what is the result? Can you see how fast price rises? This is exactly the case when one can say that supply was withdrawn.

At (10) price reaches the high of the "climax" and stops. Notice the effort it took to stop it. Bulls don't seem to be convinced much. But maybe it is just a pause. What about bears? Between (10) and {11) activity diminishes and price moves nowhere. What does it mean? Is this just a pause before the final and ultimate breakout and a 50 point gain, or is it a total failure of bulls to continue pushing? You can't tell IMHO (maybe time factor can help a bit. If bulls stop and bears don't come to take over immediately it is a sign of strenght. But if bulls are still not coming even after a prolonged period of time, then something is wrong). Definitely it is indecision. We are sitting just below R and traders don't know what to do. No push, no pull. No effort to break, no effort to reject. Just before (11) price dips one tick lower and quickly returns. But bulls don't try higher. Instead price bounces from the top of that 2 tick congestion and goes lower again. It looks like buyers are really done and sellers start to gain confidence. (Time for shorts, after all?). Price then finds support in the midpoint of the consolidation and tries higher again. And notice what happens when it tries to poke (12) into that 2 tick congestion at the last high. That is a sharp rejection, isn't it? The bulls who bought within those 2 ticks were very happy they could get out near their entry. And at this moment also notice the turquoise and violet line. These lines mark a border between value of the congestion (area where lies most activity) and testing zones (areas where price is rejected from). So if you were a bear, where would you like to enter to make an entry with the least risk? The upper testing zone would be nice. That might give another reason why the rejection at (12) was so fast.

After (12) price hoovers above midpoint, so it remains relatively strong. Clearly sellers are not as confident as one might wish if he took the short after (11). Price narrows into 2 tick range again. But notice that this situation is different than between (7) and (8) in terms of what happened before. After a failure to drive price up (13) price breaks below midpoint (this midpoint marks is in fact a micro S/R caused by all these tight congestions). Price is quickly rejected at (14) but notice what effort it costs. But the effort doesn't continue and there is another failure to escape higher (15). Do you notice how the forces are shifting between (7) and (15)?

This was an attempt to use context from recent past when interpreting what's happening. But that is not enough, so let's zoom out to 1 minute chart:



Here we see better where we are. And we see that although price broke trend line, it is still above opening high and the last swing high. The trend still keeps its stairstep nature. We can also see that volume doesn't seem so climactic any more, though it is definitely a spike. What does it tell us?
If 1200 was so important zone, one could expect more of a fight. Instead of that, yes, bulls try, but it doesn't take a real climax to stop them. And since it doesn't take so much to stop bulls, bears could have some extra power left. But they don't use it either. Price is not rejected quickly. No, it is just stopped and left hoovering above that grey line. This marks indecision and it is a warning. Indecision means a chop.

Now lets look at 5 min chart (RTH only) and see what happened yesterday around this level:



Can you see how quickly price was rejected above 1199? And what was the activity there? And what happened today? Price got above that level with less effort and it was not rejected. It is unable to go higher though.

Now what's the result? The result is IMHO no trade.

And finally lets see what the happy end looks like:


And a final note: This was all a hindsight analysis from me. I wish I could reproduce it in real time. But that depends on several things.
1) How well one does his homework: What is he prepared for?
2) Experience: What is there to prepare for and how to prepare for it?
3) Calmness: Even if one is prepared, does he remember it and is he confident and calm, or does he change his plans impulsively?
Etc. (Just some my problems I am aware of.)

Hope it helps a bit and good luck.

[innovation]

Thanks Head for the example and your detailed walkthrough, I have found it very beneficial and on the whole agree with your interpretation although I would find it difficult to approach from scratch.

(0) does indeed look like a push through R with a pause once it hit the yellow line with volume dropping off there is no selling interest, as you say bears withdrew.
(1) & (2) the bulls pause and the bears step in, then between (2) & (3) there is a struggle where the bears are victorious . At (3) the bears have stepped back, you say:

Originally Posted by Head2k »

"At (3) it is aparent that price is not ready to decline substantially yet. Another test of R is likely. Or wait a minute - maybe we just witnessed a retracement after a breakout? There is not enough information to judge that IMHO."

Is this not the same thing? Also does the amount of effort expended getting here from the recent high mean that a 'normal retracement' is unlikely?

(4) I agree someone wants to stop price advancing

(5) This one I would not be able to interpret, it could be bears trying to go down and bulls stopping them or as you say visa versa. I suppose this is one of those instance where you would need to view it in RT in order to get a feel for who stepped in and when (if you are capable of such things, I am not!). The fact that price is turned away from the turquoise line with no effort just after this : does it mean that bulls are not quite sure of themselves yet or is it unimportant?

(6) Bulls are smacked relatively hard here after their attempt to go up, this would have made me think that we would see lower prices but then price recovers to almost the same level with little opposition. So again I would have a hard time understanding what was likely to come. You say that bulls tried twice more to see higher prices but I see bears trying to go down at the first volume spike an bulls successfully holding them back for now. Followed by withdrawal on behalf of the bulls until 1200 where they think their chances of success might be higher.

(7) I would not have noticed this lack of participation until at least much later if at all, context context!

(8) & (9) I might have seen as support being shown at higher levels and the second attempt to go lower that failed would likely see an attempt in the opposite direction. In fact I see this occur quite a lot in real time - several attempts to move in one dir that fail which ultimately result in a substantial move in the opposite dir. It is more of a feeling that the prodding isn't going anywhere than anything that can be drawn and I know I shouldn't trust any 'feelings' just yet. So I ignore it only to say oh look at that

Originally Posted by Head2k »

"So now it's bulls' turn. And they come. Notice volume between (9) and (10). Somewhat high but nothing extraordinary. But what is the result? Can you see how fast price rises? This is exactly the case when one can say that supply was withdrawn."

But there is trading activity (more so than the fall between (6) & (7)) so wouldn't that mean that there was supply just more demand?

Originally Posted by Head2k »

"At (10) price reaches the high of the "climax" and stops. Notice the effort it took to stop it. Bulls don't seem to be convinced much. But maybe it is just a pause. What about bears? Between (10) and {11) activity diminishes and price moves nowhere. What does it mean? Is this just a pause before the final and ultimate breakout and a 50 point gain, or is it a total failure of bulls to continue pushing? You can't tell IMHO (maybe time factor can help a bit. If bulls stop and bears don't come to take over immediately it is a sign of strenght. But if bulls are still not coming even after a prolonged period of time, then something is wrong). Definitely it is indecision. We are sitting just below R and traders don't know what to do. No push, no pull. No effort to break, no effort to reject."

I am glad you say that you can't tell, these types of situations have made me think that I have no chance of reading the market as they leave me undecided too, I suppose you could reasonably expect a break either way and play it that way as the range is small.

(12) would have had me reaching for the trigger as you say a sharp rejection

Originally Posted by Head2k »

"And at this moment also notice the turquoise and violet line. These lines mark a border between value of the congestion (area where lies most activity) and testing zones (areas where price is rejected from). So if you were a bear, where would you like to enter to make an entry with the least risk? The upper testing zone would be nice. That might give another reason why the rejection at (12) was so fast. "

Excellent point, I hardly ever think about ideal entries for each side...

Between (12) & (13) would have made me question any short I was in based on that rejection as there and been no follow through to the down side and activity has all but dried up.

Originally Posted by Head2k »

"Price is quickly rejected at (14) but notice what effort it costs. But the effort doesn't continue and there is another failure to escape higher (15). Do you notice how the forces are shifting between (7) and (15)? "

Honestly, no! I can see that 8,9,10 are all bullish and that 12,13,15 are bearish but 14 is showing a higher level of support albeit costing more effort to maintain but maintained it is. I suppose any subsequent move past the level where (14) occurred on lower volume would indicate a withdrawal of bulls and that lower prices were likely?

Originally Posted by Head2k »

"And a final note: This was all a hindsight analysis from me. I wish I could reproduce it in real time. But that depends on several things.
1) How well one does his homework: What is he prepared for?
2) Experience: What is there to prepare for and how to prepare for it?
3) Calmness: Even if one is prepared, does he remember it and is he confident and calm, or does he change his plans impulsively?
Etc. (Just some my problems I am aware of.)"

Good points, I will add them to my list of current issues

Originally Posted by Head2k »

"Hope it helps a bit and good luck."

I does indeed, thank you. Now I just need to work out how to see this in RT, how to trade it and how to go about back testing whatever I come up with. Shouldn't take more than today, lol


Cheers