Volume-Price-Patterns-Context & Catalysts, an Application to Trading Stocks

[tech/a]

How about 10 live trades. Just day of entry and then day of exit. Otherwise just theory.

Great idea
I’ll post up ( over time ) more than 10 in the thread Charts of Interest
In the members section.
The trading methodology may not be clear this early on.

Even though this is volume 1 of a number of posts on this fascinating topic.

My trading of Price,volume,pattern,context and catalyst is more 20 yrs of observation and implementation than theory.
But to everyone else it’s theory and hypothesis —- understandably

 

[tech/a]

Volume control Bars --- have BOTH Range and Dis-proportionally high volume. 5+ x Average volume
Volume absorption Bars --- have Dis-proportionally high volume but little range. 5+ x Average volume
Continuation Volume Bars --- have average volume and average range. .5-3 X average volume moving in the one direction.
Spot Volume Bars --- have well below Average volume and below to average range the most powerful of these follow V/A or V/C bars
Flat Bars --- Have average volume and range and are not indicative of anything in range and volume.
Found in consolidations

Note ---- GAPS
The width of the gap and the range of the bar should be added together to form any support or resistance ZONE.

I personally like a stock to have an average liquidity of $300,000 over 10 days.

Combined with Volume ALL bars have a story. Many of these bars have been given various names by practitioners,in particular exponents of VSA. I have found all fit into the types of bars above.
http://www.tradeguider.com/mtm_251058.pdf
Read the above link for individual Bar interpretation,they are worth knowing.

Below is a chart showing examples of how I would be reading this chart with regard to Range and Price.
Clearly not every bar is marked.

This should give people a " Feel " for the price action in this chart.

If you find yourself trying to read a chart which doesn't give you a clear feel for its Price action and Volume---leave it and move to another. There are plenty which tell clear stories.



Finally all price and Volume analysis is an INDICATION of what is happening with the stocks participants and supply and demand. Every indication has to be Proven or Discredited.
This is where everything else that we will look at comes into play.

 

[greggles]

Thanks for this tech/a. You're posting some very educational content that I'm learning a lot from.

I have a question about volume absorption bars. In your chart above, it is clear in hindsight that the volume absorption bar in late February was buying pressure that was absorbing sellers. I assume that it can also be selling pressure that is being absorbed by buyers. How can you tell? Do you watch the market depth or can the previous bars (or other indicators) give you information that you can use to determine whether it is likely that an imminent move will be up or down? It appears as though these bars tend to immediately precede, or form the early part of, a change in trend.

 

[tech/a]

Great question and will be answered in the next instalment

 

[tech/a]

Hi Lindsay
Thanks for having a shot. AMI

Your right about into involvement ( catalyst ) 36% of a single holding were sold
On that day to other instos and individuals.

But the subsequent bars are interesting in particular the last bar on the chart
We can see weakness after the sell off. My point with this chart is that there is an indication of a top and the last bar is testing this.

One to watch and follow the analysis.

 

[tech/a]

SUPPLY or DEMAND

Interesting chart there Tech, any increase in volume without price increase one needs to be ready with a tight stop here in my view.

Thanks for this tech/a. You're posting some very educational content that I'm learning a lot from.

I have a question about volume absorption bars. In your chart above, it is clear in hindsight that the volume absorption bar in late February was buying pressure that was absorbing sellers. I assume that it can also be selling pressure that is being absorbed by buyers. How can you tell? Do you watch the market depth or can the previous bars (or other indicators) give you information that you can use to determine whether it is likely that an imminent move will be up or down? It appears as though these bars tend to immediately precede, or form the early part of, a change in trend.

This question is one I see every time this topic is discussed and one I battled with myself.
Over the years I have adopted the following when I look at any chart in any time frame and
any bar or clusters of bars of interest.

SUPPLY controls PRICE

Without supply price will not fall
Without supply being with drawn price will not rise.

DEMAND will win or lose --- the landscape of a chart----- is SUPPLY dependent.

For ME this has made reading charts and price action so much easier.

First question I ask when looking at a bar or a chart is
What is Supply doing---in all time frames.

I dont think in terms of DEMAND.

 

[lindsayf]

SUPPLY or DEMAND






This question is one I see every time this topic is discussed and one I battled with myself.
Over the years I have adopted the following when I look at any chart in any time frame and
any bar or clusters of bars of interest.

SUPPLY controls PRICE

Without supply price will not fall
Without supply being with drawn price will not rise.

DEMAND will win or lose --- the landscape of a chart----- is SUPPLY dependent.

For ME this has made reading charts and price action so much easier.

First question I ask when looking at a bar or a chart is
What is Supply doing---in all time frames.

I dont think in terms of DEMAND.

Your view of this has always confused me as clearly price is about both supply and demand...one overcomes the other at different locations and times. However I am willing to see if thinking just in terms of supply can be useful. Thanks Tech.

 

[tech/a]

Your view of this has always confused me as clearly price is about both supply and demand...one overcomes the other at different locations and times. However I am willing to see if thinking just in terms of supply can be useful. Thanks Tech.

And clearly it does.

The only difference is I'm not trying to identify demand.
If price rises then demand is winning as it will chase price higher to get filled
as SUPPLY WITHDRAWS.

If Price Falls then Supply will accept lower prices as DEMAND Withdraws.
If supply stops then price will steady or rise. Only continued strong supply
will see price continue to fall.

I'm only looking at the consequences of ONE the other follows!

May not suit all but suits me.

 

[greggles]

Does it matter whether it's a one minute chart or a daily chart or a monthly chart? How do different time frames alter the analysis, if at all?

 

[tech/a]

Does it matter whether it's a one minute chart or a daily chart or a monthly chart? How do different time frames alter the analysis, if at all?

Volume (Liquidity) is the key.

Highly liquid Indexes are pretty good down to 15 minute--DAX
But say the SPI is hopeless at that lower time frame.
Higher timeframes are ideal for stock.

For stock I prefer daily and have traded 2 hr timeframes ok with very liquid stocks.
Lower than 15 min in what I trade for me is too low in volume to be indicative of anything. but Currency traders may find it useful at say 5 min (I Haven't watched it).

 

[lindsayf]

Volume (Liquidity) is the key.

Highly liquid Indexes are pretty good down to 15 minute--DAX
But say the SPI is hopeless at that lower time frame.
Higher timeframes are ideal for stock.

For stock I prefer daily and have traded 2 hr timeframes ok with very liquid stocks.
Lower than 15 min in what I trade for me is too low in volume to be indicative of anything. but Currency traders may find it useful at say 5 min (I Haven't watched it).

Didn’t you look at 3 minute charts on the Dax for a while?
Did you conclude that vsa on that timeframe was unreliable?
Of course my memory could be dodgy.

 

[tech/a]

Sure do but I don't apply this form of analysis to it.
And yes I would not use it in a timeframe that low.
Your memory is pretty good from what I see.

I can and do set a basis from the analysis though.
Smaller timeframe charts are used for timing in the direction indicated by the higher timeframe.
Which can alter during a session.
I'm generally in and out in 30 min but could have 2 hrs screen time.

 

[lindsayf]

Thanks, looking forward to learning more. Context for low time frame directional bias in particular.

 

[tech/a]

I'm generally in and out in 30 min but could have 2 hrs screen time.

Just to clarify--when trading the DAX.

For the live examples I will work through (Currently)

MYX--had a day where Supply was present and while volume was low range was on the high side (Weak) Ill show the lower time frame charts for this.
Expecting Support and further distribution or accumulation.
SHV
WGX

Pressed for time but will comment and mark up charts when I can.

 

[tech/a]

OK I just wanted to post up a chart showing V/C bars all the way through a period.
You can watch any number of charts do similar.





Other things to notice is that Range of bars increase as they move from Accumulation to trend
and Distribution to trend.
Tops and bottoms are marked by volatility. Quite often this will signal movement when volume is not as evident.

 

[tech/a]

Lets look at other important aspects of a chart.

Absorption Volume
What happens within Consolidations
Good moves and where they normally occur
A look at a pattern
Super low volume tells us as much as Very high volume. (No Supply).



More coming after lunch!

 

[tech/a]

A quick intro to patterns behavior
Consolidation IS a Pattern!
But small tight patterns are very powerful.
Charts are littered with them.
Consolidations hold their own stories which can be
easy to interpret and to ANTICIPATE.

 

[barney]

Hi Tech …. Great info as always ……

With your permission and for the benefit of ASF and Joe's endorsement for more involvement in the individual Stock threads in mind ………

Are you happy if myself or any other ASF member screenshots your work on this thread and its corresponding thread … and pastes it on the appropriate Stock thread? …..

I think this would be a win win for all ……. there is no need for you to do any additional work as the screenshot can be done by myself or others as they see fit …..

Hopefully you are happy with the above idea … ….. Cheers.

 

[tech/a]

Sure

 

[barney]

Sure

All good thanks Tech ….. You've done a lot of work which will give the individual stock threads some substance. Cheers.