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Price, (Volume), Support, Resistance, Demand, Supply . . .

Q&A

How about a really simple statement of what the relationships are between these
aspects?

Support and Resistance are points where respectively, Demand overshadows Supply
and Supply overwhelms Demand. That would assume no other direct or indirect
manipulation of the price - just straightforward buyers & sellers.

High, lows and particularly round number points are likely SR points (especially
decade points).

Recent High/Low points also act as SR points. Current day, previous day, weekly,
monthly, 52wk Highs & Lows.

Where the bunny hits the mincer is when we look at the relationship between Price &
Volume.

Db, you're an expert on this, why don't you give us your take on it?

You're on the right track, but allow me to make a few modifications.

S/R are not points where demand overwhelms supply or vice-versa. They are rather
points or levels or zones at which the movement of price might be affected due to
the fact that price was affected there earlier by demand overwhelming supply or
vice-versa. In other words, a swing high occurs because supply overwhelms demand,
at least for the time being, but one cannot assume that a swing high is going to act
as resistance simply because it's a swing high. It must also act as resistance in order
to be resistance. If it doesn't, then it isn't. Again, this is not to say that highs, lows,
round numbers are not potential S/R. But they are not actual S/R until they
actually provide S or R.

As for the expert part, I'm just looking for the truth, and I've learned that the truth
is to be found in price. Understanding the behavior of price is the real trick.

If the price reverses at a resistance level it can be either that new supply has come
in or that demand has been withdrawn - presumably you look to volume to tell you
which?

If the "resistance" level has demonstrated that it provides resistance and price
reverses there, it could be doing so for either of the reasons you suggest. Volume
provides a clue, but since volume is only trading activity, one has to look at the
relationship between volume and price. If, for example, there's a lot of activity and
price is difficult to budge, then one can assume that demand is insufficient to outdo
supply. That may not be the case if buyers can trigger short-covering, but you play
the hand you have. OTOH, if there's not much activity but price rises anyway, one

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can assume that there is at least some demand, but not enough selling interest --
yet -- to curb it.

I agree about accumulation occurring at a price due to "institutions" wanting to buy


big vol at price x, with the help of MM's.... however, on indices, I think accumulation
occurs in a band where the market in general (the big boys) prepare for a move.

Where it occurs isn't as important as how it occurs and how long it takes. Generally,
"accumulation" that takes place quickly won't take enough supply out of the picture
to enable a move that is significant enough to generate more than a paltry profit, if
any.

The problem with pure price/volume analysis is not being able to split buy volume
from sell volume systematically, you can only do it by studying the day's trades and
it's prone to error. If I'm wrong there, someone let me know. In looking at
price/volume alone, how can you know or at least get a feel for buy/sell volumes
within the single volume figure reported?

I looked at 10 years EOD of one UK big cap and found no relationship between t-1
price movement and volume movement and t0 price movement (perhaps a very
slight tendency for price to continue downwards if previous day's price was down and
volume was up, but probably insignificant). It was a crude analysis however, in
preparation for something finer which I'm working on).

In practice do you end up concluding that the high volume candle/bar at the bottom
of a dip meant buys kicked in and added to the existing sells giving high volume
overall, AFTER the event? During the event you could as easily assume it was sells
increasing to accelerate the down move. Early thoughts on this and quite basic.

Volume in and of itself is reflective only of trading activity, such as the number of
shares traded. In order to know whether it is indicative of demand or supply, you
have to look at the results of all this activity, i.e., the effect on price. In other words,
there is no such thing as "buy" volume or "sell" volume; there is only volume, since
a buy cannot take place without a sell (or vice-versa). What makes price move up is
not the buys in and of themselves, but the demand.

As to high volume at the bottom of a dip or W or rounded bottom or whatever,


again, it depends on the effect on price. If there's a lot of volume and price doesn't
fall, then you can assume that the selling is exhausted and that aggressive buyers
can buy the bounce, or that more conservative buyers can begin the accumulation
process, depending on the context. If volume is high and price continues to fall, then
selling is not yet done and buyers are not willing to do more than take shares off the
hands of panicky sellers; they are not, in other words, anywhere near ready to pay a
premium to stop the decline. The fact that the volume is high, however, suggests
that selling is near an end.

Of course, "high" is relative and has little meaning unless it is placed within the
context of a chart. One man's selling climax is another man's continuation unless one
looks at the forest.

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But within any single volume bar the ratio of buys to sells isn't 50:50 is it, the MMs
don't keep perfectly flat books within short timeframes. On say an EOD chart, I don't
see how you can say that the high volume at the bottom of a decline is due to
exhausted sellers and aggressive buyers IF every buy & sell are matched - if they
were matched and vol is high, there's still a ton of selling. They get matched of
course but over time is what I'm getting at. Maybe this is getting OT and I should get
my thoughts clearer.

There can't be a buy without a sell. What moves price is not buyers but demand. If
buyers aren't willing to pay what sellers want, then sellers have to drop their price.
Otherwise, no trade takes place.

This is a biggie, so don't try to swallow it without chewing on it for a while.

These and other tape reading studies are useful, but I'd love to hear how you go
about creating specific criteria for entering and managing a trade.

My experience has been that rushing into the premature creation and definition of
setups is a serious mistake, though not everyone will agree with this. Trading via
price and the interpretation of buying and selling pressure requires a certain way of
seeing and nearly always requires that a great deal be unlearned.

This is not to say that one just ought to stare at charts being formed all day, every
day, day after day, with no objective other than to endure the experience. However,
it's important to note how price moves, and to try to figure out why it moves that
way.

To a large extent, that's where S and R come in, so perhaps one of the first steps is
to develop an understanding of S and R.

Here's my take on S and R

-Floating supply must be removed to penetrate resistance. A move up through


resistance mainly occurs not because of increasing buying but because of an absence
of selling

-It takes professional money to penetrate Resistance, and higher volume with
movement in the price action to confirm a valid penetration

-A market will only fall through a support area when there's an absence professional
buying

-Again increasing volume with price movement within the bar confirms a break
through support

When prices are approaching both support and resistance on decreasing volume this
shows a lack of interest from professional money to participate at these levels and
prices are more likely to reverse.

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You seem to be equating R with supply and S with demand. You may have better
luck by equating R with selling pressure and S with buying pressure. Buying, selling,
support, resistance, demand, supply are related, but they are distinct.

For example, if there's an "absence of selling", there can't be any buying. In order
for a transaction to be completed, there must be both.

Similarly, volume has nothing to do with whether a penetration of S or R is valid or


not. Volume often comes later, if at all. And of course, if S or R don't provide S or R,
then they aren't, though they may have been at one time.

Would it be more correct to say :

A move up through former resistance mainly occurs not because of increasing buying
but because of an absence of selling pressure.

A move down through a former support area occurs when there's an absence of
professional buying pressure.

Given your point on volume is correct, how would you judge whether a move
towards former S and R areas is likely to continue through, by price action alone ?

A move through "resistance" occurs because buying pressure is greater than selling
pressure. An absence of selling pressure in and of itself may mean no movement at
all.

As for the "professional" part, what difference does it make? You make or lose
money over price movement, not as a result of who's moving it.

As to whether or not the move is going to continue, nobody knows. There's no way
TO know. That's where your rules come in.

I'll reiterate that demand, supply, support, resistance, buying pressure, selling
pressure are all related, but distinct. Unfortunately, the meaning of demand and
supply have become corrupted, like "overbought" and "oversold". Supply, for
example, does not refer to some hoard somewhere that is drawn upon in order to
satisfy and overwhelm demand, like a trainload of avocados. Thinking of it in this
way is not productive, or even useful, and it can lead to errors in perception which
can lead to further errors in strategy creation, trade entry and trade management.
For example, thinking of supply as a pile of something can lead to expectations that
it will eventually run out. These expectations may not occur if one perceives the
activity as selling pressure instead. Selling pressure can last for a good long while.

Identifying Support and Resistance is fairly straight forward enough to do on all chart
timeframes IMHO. The key is the price reaction at those areas. At it's simplest
anytime there's a rally the base of the rally can be called Support on the chart,
Buyers supported that area by buying. Vice versa for selling. The more times the
support/resistance area is retested the more valid your support/resistance is. Please
note that I see Support/Resistance as areas and not one price.

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I find the harder part to my trading is to know how to trade that support/resistance.
There's always the old chestnut of "Buy at Support and Sell at Resistance" but you
never really know if it's support until after you've bought and there's also the chance
that support won't be fully tested so you're not in a position to buy. Maybe It should
read "Buy at or near Old Support and Sell at or near Old Resistance" but I do believe
that it's the best place to buy or sell as it gives me natural areas in which to place
stops i.e. under said support if buying.

To help get a feel for market direction I look at the price reaction at those
support/resistance areas that I've identified. If I see the market go up 70 points in 2
days from the support area and at resistance only goes down 20 points in 3 days. I'd
say that demand was present at support but didn't see supply present itself in such a
fashion at resistance. Therefore my outlook for that timeframe would be more bullish
than bearish. I would feel more comfortable buying at/near support than selling
at/near resistance. I also find that timeframes are very important to my trading as
what often appears to be a major support area on a daily chart might be nothing
more than a correction on a weekly/yearly chart. The longer term support/resistance
areas are most important to my trading. e.g. Support on a 5 minute chart is nowhere
near as important as on a yearly chart. If support/resistance areas tie up on more
than one timeframe then you have a tradable market IMHO. For each timeframe I
decide whether I'm Bullish, Neutral or Bearish and it's often the case that I'm Bullish
on the weekly chart and Bearish on the daily chart for the same equity.

I personally find that once the resistance area is broken a very profitable area to
enter long is at the retest of that old area, hence the adage "Old resistance becomes
new support" and vice versa for Resistance.

There's a number of questions that need to be answered when I trade off


support/resistance and as with anything the more I trade the better/more confident I
get at answering them. I'd also say that my approach is very subjective and I have
to make many "Judgement Calls" on what I see around the support/resistance areas.
I would love to find a non-subjective system but have yet come across anything
which does not require the trader to use his/her judgment when deciding to buy/sell.

For a practical example, I've attached a chart which may help illustrate this S/R
business.

There are dozens of swing points in this chart, thousands with a shorter bar interval,
but these are enough for the illustration.

Note at 1 that price reverses. You don't know why. Doesn't matter. But it reverses,
making a swing point. It's not support. Not yet. Just a reversal due to changes in the
balance between buying pressure and selling pressure. At 2, however, this level now
becomes support. Ditto for 3 and 4 re resistance.

When this R is penetrated, a new swing point is created at 5, though it's not yet R;
it's just a swing point. At 6, that old R level is tested and now becomes S. When
price balks at 7, that level now becomes R.

Note that S is "broken" at 8. However, price quickly rebounds above this level,
confirming its importance. When price is unable to reach R, suggesting less buying
pressure, breaking this line again generates more of a selloff. The line is broken
again to the upside, re-confirming the importance of this level, and when selling

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pressure gains the upper hand for the third time, a substantial selloff ensues, down
to 10. Buyers love this level, tho, and push price all the way back to 11. The next
day, this carries implications for the move to 16.

There are maxims that we come to believe as though they were principles, or even
laws, though they barely qualify as guidelines.

For example,

S once breached becomes R, and vice-versa.

Buy S, sell R.

The more a given level is tested, the stronger it is.

Big volume on breakouts or breakdowns is good (assuming you're on the correct side
of the trade).

And so on.

However, in order to determine whether or not any of this is true, one has to go back
to the point where these old reliables gained currency. That could take a great deal
of time, however, and probably wouldn't be of much interest, much less practical
use.

So for now, perhaps we could settle on the concept that S and R represent those
levels at which one can expect to find profitable trades. Unfortunately, it's next to
impossible to determine in real time whether those profits are to be found on the
short side or the long side. The idea that S, for example, becomes stronger the more
it's tested does not bear close scrutiny. In fact, if S has been tested twice and price
returns there yet again, sellers assume that there's a reason and they prepare to
short that return. Some have created yet another maxim -- Third Time's The Charm
-- but this doesn't stand up under close scrutiny either. As with everything else, it
just depends.

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So what does one do at these so-called S/R levels? As Mark Douglas counsels, "be
available". Don't assume one side of the trade or the other, but be prepared to take
either.

I like the chart. I think it shows nicely that S/R appear on all timeframes. I'm
guessing that it's a 5min intraday chart you posted? I also like the fact that you've
replaced a maxim with another maxim -- "if S has been tested twice and price
returns there yet again, sellers assume that there's a reason and they prepare to
short that return" -- but you have a valid point that all trading
rules/assumptions/maxims are broken. It's impossible for a trader to be profitable
100% of the time and therefore that means that sometimes our assumptions as
traders are incorrect. But as a trader you have to deal with that and the key is to
have a strategy in place for when we are incorrect, i.e. stops. S/R areas need to be
monitored to gauge the reaction of the market, you're able to form opinions of the
market dependant on those reactions. Once you've formed opinions of the market
you're in a position to trade the market.

This is a great thread which brings a great deal of information to the table and
reminds me of a snip from the classic book Reminiscences of a Stock Operator where
a brokerage firm runner goes to his boss and says that he's got the low down on a
certain stock and that the big players are buying. The boss then calls the floor and
sells 1000 of said stock. "What?" the runner says. "Did you not hear me right?
They're buying." So the boss picks up the phone and says "Sell 1000 more". At this
point the runner is getting quite irate. "Boss, they are buying and all you are doing is
selling. Do you not trust me?" The Boss then studies the tape and sees that his
orders have not budged the market. He then picks up the phone and buys 10000 of
the same stock. "You see, boy, if your information was incorrect, my selling 2000
would have made an impact on the tape. It didn't move it one bit so therefore that
confirmed to me that someone was absorbing my selling, so your information was
correct. Thank you very much." Please forgive me that it's not word for word but I
think it demonstrates nicely that the boss identified the market support by selling
2000 lots of the stock in order to gauge the market reaction. He saw that the market
absorbed his order easily therefore he knew the big players were buying (supporting)
and was in a position to go long.

It's the soaking up of that supply which causes those in the know to get long. The
big players will defend their position by absorbing the supply and adding to their
position along the way. The market shows a lot of effort (volume) for little result
(small price range), which is a tip-off to those looking.

These players are happy for the market to flow between Support and Resistance, but
they control the range by buying at/near support and selling at/near resistance.
Adding to their position near support and taking a little off near resistance, but they
will still remain net long. It's hard for the big players to mark-up the market quickly
with the number of contracts/lots they require and getting a good price throughout.
It's the controlling of these price ranges (S/R) which allows them to satisfy their
objectives (getting long/short at a decent average price).

As to the "maxim", I was only explaining the Third Time's The Charm, since the
reasons for these things tend to get lost over time. Price can bounce along S five or
eight times if it likes. What matters is what happens at the time and as a result.

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As for having a strategy in place for when we are incorrect, there's more to choose
from than stops. At the very least, one has to "be available" and consider taking the
other side. This idea has been corrupted to a large extent by the Parabolic SAR
indicator, but in it's original form, the idea is sound. Whether one is successful with a
self-reversing tactic or not depends on how well he defines the setup, but it's there
for consideration.

I'm not confident enough to reverse if incorrect on a trade. If I'm in doubt I get out
and then re-evaluate the position. If a reverse is required then I'll do so.

I include two elements beyond the usual in the definitions of my setups: (1) what
will invalidate the trade before the entry is triggered and (2) under what conditions
will I fade my own setup (i.e., take the reverse). These apply only to entry, of
course, and I make as few entries as possible (preferably, one). If I don't do this, it's
difficult to tell when the trend has reversed, and it's much easier to find oneself
trading counter-trend than most gurus are willing to admit (incidentally, going
through this process is also a handy means of determining the stop for at least a
portion of what's held).

In the matter of coils, I should point out here that it is absolutely critically essential
(or essentially critical) that one decide just what he wants to do about trading coils
(or symmetrical triangles or hinges or whatever). They come up often, and one is
regularly tossed out of whatever trade he may have taken by multiple reversals.

An uptrend consists of higher highs, higher lows. A downtrend consists of lower highs
and lower lows. When the highs begin to even out and the lows begin to even out,
you've got a range. Whether that range is tradeable is up to you.

However, when price starts making lower highs and higher lows at the same time,
the "triangle" pattern begins to develop, and if one doesn't notice what's happening
with highs and lows, he can find himself trading shorter and shorter movements until
he is more or less making random entries and exits.

Not that trading within these coils is a bad thing. However, trading them requires
different tactics. If one gets caught up in a coil without being aware of it until it's too
late, he can end up having made a lot of unnecessary and probably pointless trades.

For this reason, a lot of people avoid trading them at all, waiting for price to break
out of them one way or the other. However, these "breakouts" are a messy subject
in themselves, and the tactics require advance planning and testing.

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Example of a hinge (actually, two):

Two things about coils et al. One is that they should be "filled with price", as
Schabacker said. Otherwise, you're looking at a different dynamic. The other is that
the business of the breakout being faulty if it doesn't take place by 2/3 of the way
through the triangle is not supportable. This scenario may apply in a highly-charged,
volatile, trending market, but otherwise, the longer the base around the midpoint,
the more likely there will be a strong, sustained move, assuming that traders are
interested in the instrument in the first place.

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This chart may be of help in making certain concepts clearer. The example used is
the NQ, but the concepts apply to all trading vehicles regardless of timeframe or bar
interval.

SC = Selling Climax
BC = Buying Climax

Another chart to chew on

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I have a number of questions. Most, if not all, are very basic. Please bear with me.

Working from left to right along your chart.

1 r=resistance ?

2 note tails, what is to be noted ?

3 s=support ?

4 poor quality vol, unable to make new high, but volume was rising.

5 up vol gets worse. what is significance ?

6 pot'l SC off, what does this mean ?

7 pot'l exh, what does this mean ?

8 weak hammer accomp by good vol, what is significance ?

9 slng exh, what does this mean ?

1. yes
2. price is unable to hold at the highs
3. yes
4. vol was rising to the downside
5. vol declines as price rises
6. potential selling climax off minor support from previous day; note hammer
7. potential exhaustion, what some call "oversold"
8. weak hammer accompanied by good volume. The volume suggests a large
number of shares being traded, but the weakness of the hammer suggests that
buyers are not particularly strong
9. selling exhaustion

The major move of the day appears to have been at approx 12.00 with the price :@
1492. At that point what was there on the chart that would have indicated that the
price was about to fall.

I appreciate that vol had dropped off but surely that is not enough to indicate that
the price was about to fall. What else would you have used to indicate the fall ?

The volume in and of itself would not imply a fall. Vol reflects only the number of
shares/contracts traded. Demand pushes price, but the series of lower highs
suggested that demand was insufficient to push price (if volume had been higher,
one could assume a greater selling pressure).

Notice also that the bars get smaller and smaller, suggesting that equilibrium is
being reached. At that point, you figure the probability of an upside breakout or a
downside breakdown.

Given the soft demand and the increasing resistance, the line of least resistance is
most likely down. However, one must also be prepared to fade his own setup and
take the long side if that turns out to be necessary (most traders will allow

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themselves to be stopped out, get depressed about being wrong, and never consider
the criteria for taking the opposite side).

The chart at approx 11.00 shows vol rising and the price falling., would this have
suggested a good time to go short?.

Depends on what you select as the trigger, the entry point, and the stop, then on the
results of your tests of the setup.

Bearing in mind the title of this thread ,it suggests that support/resistance would
provide the answers

Since S/R represent the levels at which one is most likely to find a trade, that's part
of it. But you have to decide if you're going to enter more or less at random, at the
break of the TL, at a break of the bottom of the bar, at a break of the swing low, etc,
where you're going to place your stop, how much risk you're willing to assume,
whether or not you're going to use a conditional stop or a time stop, etc. IOW,
there's a lot more to it than just "go short at R".

There is a book, The Undeclared Secrets that Drive the Stock Market, by Tom
Williams, on this subject, if it interests you.

Generally speaking, it is a mistake to analyze price and/or volume bar by bar as


doing so focuses attention in the wrong place. One begins to concern himself with
what a particular price bar "means" or what a particular volume bar "means" or what
a particular bar pair "means", much like many so-called "candlestick traders" focus
on what a particular candle "means".

What matters is not a particular bar or bar pair since the bar is entirely a function of
whatever bar interval has been selected by the trader. What matters is that which
the bar reflects, i.e., buying and selling pressure. Given the extraordinary depth of
bias amongst most traders toward signals and triggers and indicators, tuning into
this dynamic may be impossible for those traders. But it is just this dynamic which is
the concern of those pioneers to whom traders often refer, e.g., Wyckoff, Livermore.

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A couple more charts to chew on. OL = Opening Low.

Analyzing static charts is only the barest beginning. And even after analyzing
hundreds of charts over many months, there is still the issue of being sensitive to
the buying and selling pressures that create the bars in real time.

There's nothing special about these charts. They are merely a selection of the charts
I print out every day, though I write my notes on the page rather than type them

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onto the image (the latter is done for posting). Therefore, any chart on any day can
be annotated.

The purpose of the annotations, however, is only to give the interested trader some
idea of what to look for in real time during and throughout the trading day. And if
one is sensitive to the push/pull, volume bars are close to irrelevant, at least to
someone who's trading in real time (volume bars are much more important to EOD
traders).

Therefore, if you're trading in real time, make your notes in real time. If you wait,
you may find that subsequent events answer your question, and the puzzlement you
felt at the time will be forgotten. Note the puzzlement. Then, if the answer appears,
note the answer as well. Waiting until the EOD to make your notes is of only
marginal value without these real time jottings.

Would it be possible for you to explain the reasons why volume bars are more
important to EOD traders.

EOD traders aren't watching the charts form in real time throughout the day. So
volume bars are all they have, unless they include intraday price action in their
analysis.

Regardless of whether I am watching a 60, 30, 5 or 1 minute bar form in real time I
was wondering whether it is necessary to see every single tick of data that forms
part of that bar, or whether a snapshot every second is sufficient? Sometimes I am
sure I miss important clues because I am not seeing every trade go thorough.
Short answer: no, you do not have to see every tick unless you're trading ticks and
you do not have to see every trade "go through".

I've learned my lesson regarding LII and T&S and won't be getting into it. Too many
people just love it/them and can't imagine trading without it/them. That's okay by
me. Whatever floats one's boat.

However, unless something shows up on the price bar as a completed trade, it's not
your concern, assuming that your strategy involves making money out of the
movement of price up or down. If you're concerned with assessing the balance
between buying and selling pressure, your primary concern is the movement of
price. The bar interval you use to display that movement is merely a choice. It has
nothing to do with the price movement itself, that is, the price movement is
independent of the bar interval. Technically, you could (and might, some day), use
just one bar for the entire day and watch the little notch travel up and down, like a
thermometer, which is more or less what traders did before real-time charts (though
some plotted primitive P&F on scratch paper).

As for the clues, most intraday traders use some bar interval other than daily
because they don't have the habit of detecting swing points and S/R without the
individual bars (early traders such as Livermore had no choice but to develop that
sense).

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But these, along with trendlines, are merely a convenience, like the width of the line
one chooses to note a highway vs a road. The movement of price is the focus.

When u say "sensitive to the push/pull", do u mean the buying pressure verses the
selling
pressure.

Is this shown on the chart by the "ease of movement" in one direction compared to
the opposite direction. (eg up swing vs down swing)

Is this shown by the the ease of movement of a swing compared to the last swing in
the same direction?

On an individual bar basis it would be the size of a bar and how it relates to the
previous bar/bars.

1. Yes.
2. Yes (assuming you're not talking about the indicator)
3. Yes.
4. Yes.

Early on in this thread I thought you were talking about how important volume is,
because it is the volume of buying and selling pressure that cause price movement.

Are you saying that after gaining a certain amount of familiarity with real time
trading, you can pretty much tell what's going on with volume, just by the ways the
bars are forming? By looking at a chart you can "know what kind of volume" was
behind it - the way a tracker can look at tracks in the sand and say, "the dog was
trotting along looking left at this point, then it stopped here, then sprang forward
here and pounced."

Are we getting to plain old pure price action...?

You're asking several questions.

Yes, volume is important. But the volume bar is simply a way of illustrating volume
action. What's important is the volume itself, not what's used to represent it, just as
what is important about price is the price action, not the bar interval chosen.

And, yes, you can get a pretty good idea of what's going on with volume by the way
the bars are forming, but not of course in hindsight. That's the difference in watching
them form and reviewing a static display. EOD traders, of course, don't have the
luxury of watching them form [Note, 2008: this post and other posts making this
comment were written before "replay" became available], so they require some sort
of representation of volume such as the volume bar. A gardener has a different
appreciation of a rose than someone who buys one at a stall.

And one can eventually get to plain ol' price action, if one is watching it in real time,
but since volume of some sort is required to move price, it helps to understand the

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nature of volume. One can also admire a car in motion, but in order to understand
why it does what it does, one must know something of the accelerator and the brake
and the effects of inclines and declines, as well as abrupt encounters with immovable
objects.

Trying to interpret price in hindsight without volume is possible, but one is working
with a handicap, like beating egg whites with a knife.

With due respect, I find your interpretations are hindsight. There are stacks of
similar chart signals that will give opposite results. I have been trading for many
years and have never got to the bottom of volume.

To quote Brian Marber in Jim Slater's book "Shares can fall on low volume, and they
can rise on low volume as well. The former is supposed to be good news and the
latter, bad, but neither cope with the fact that the share has undoubtedly moved one
way or the other."

To me, the study of volume clouds the issue and I venture to suggest that my own
signals would get me into and out of trades on your charts without using it.

All charts are hindsight, particularly annotated ones. That's the nature of charts and
annotation.

As to "good" and "bad" volume, I've pointed out many times that volume reflects
only the number of shares traded. What matters is the effect on price, not the
quantity of volume per se.

And I'm sure your signals are just fine. You'll note the "volume" is in parentheses in
the title of the thread, since what moves price are buying and selling pressure.
Volume is simply a manifestation of this dynamic.

I thought I'd give my take on this buying/selling pressure issue.

Volume alone means nothing. But volume (regardless of how much of it), with price
movement, means "pressure".

If there are trades taking place, and the price is moving up, then there is pressure to
the upside, and also the reverse is true, trades + down price = downward pressure.

For me, the volume picture is of the most help at seeing potential exhaustion, or a
confirmation of continuation. Other than that, price action is foremost on my decision
tree.

So how do we use this information?

Knowing that price is moving up indicates buying pressure - at that moment or


timeslice only. We can take a position that the market has a higher probability of

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doing what it's currently doing in the next bar than anything else. But where does
the sophistication come in? What additional knowledge can be applied to the current
situation? Support & Resistance are obvious considerations. Supply/Demand partially
exposed by Buying/Selling pressure. IS volume action the key indicator then?

What other factors to we use to determine if this will continue, slow, stop, or even
reverse?

If by "sophistication" you mean where do you set price targets, stops, etc, that
comes from developing a thorough familiarity with the territory rather than coming
up with increasingly elaborate maps. If, for example, sellers can't find a trade in one
direction, they'll look for it in the opposite direction. And they'll continue to fish until
they catch something. If they catch something, and the catch attracts attention, it's
up to you to determine the criteria for entering the move, as well as the criteria for
exiting the move if it turns out to be short-lived.

You have no way of knowing whether a given move will continue or not, nor do you
have any control over same. But you can determine the criteria for deciding when to
scale out or exit. You always have absolute control over that.

In a market where 90% of the traders are buying/selling things that don't exist as
long as they agree on the price (e.g., spot, futures, indexes and other derivatives),
do all of the same stock type principles apply? Does the speculator add more than
just liquidity? Is there a tipping point where the speculators involvement changes the
nature of the game?

The demand/supply thing is only a step, since there are obviously many cases in
which supply is not finite. Actually, it isn't even finite with stocks anymore since
nobody holds anything. But that's another subject.

Most beginners (and some not-so-beginners) don't fully grasp the nature of the
auction market, or even that the stock market is an auction market. Since trading by
price movement requires a certain perceptual and conceptual view, it's seemed best
to me to start with the auction market and the law of supply and demand since this
law is one of the few absolutes (perhaps the only one) in the stock market.

Moving from an understanding of the dynamics of supply and demand balances and
imbalances and how they move price also seems to me to be a necessary step before
getting into buying and selling pressure. Perhaps not. But given the number of
people who lose their way before getting to this point, which I feel is essential to
understand before developing an intuitive sense, I doubt that jumping right into the
nature of buying and selling pressure would be very productive.

So, yes, the principles apply. But there's more to it. Unfortunately, to understand
that "more" requires a certain amount of experience, i.e., the experience of having
watched many charts and a great deal of price action as a participant and not just
from some book or article. Given the amount of perceptual and conceptual
reconstruction that is usually required, it's no mystery that most people would rather
just buy when the blue line crosses the red line and sell the opposite.

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I should also point out that the "operator" (or equivalent term) referred to by
Wyckoff, Livermore et al and in my book is today a somewhat irrelevant and quaint
artifact of days gone by. Given the hundreds of funds, the thousands of investors,
and the more thousands of traders, manipulation is far more difficult than most
people believe. The "operator" is primarily a conceit to illustrate and people the
process whereby stocks (and thereby markets) are accumulated, marked up,
distributed, and marked down. There are no groups of shadowy figures lurking in the
half-light, waiting to pull the rug out from under you and run away with your money,
chuckling gleefully. Believing that there are is the primary reason why so many
novices try to "catch reversals" where no reversals exist.

However, it is naive to believe that brokerages issue buy ratings on stocks they don't
already own or that they issue sell ratings on stocks they haven't already sold. The
process of accumulation, markup, distribution and markdown is as absolute and
inescapable today as it was a hundred years ago and before. The "operator",
however, is the market itself.

Do you make use of volume or just rely on price itself. Your comment concerning
trading the present, could you expand on this please.

My knowledge in this field is rather limited. I do not use volume partly because you
cannot rely on what is a sell and a buy and the manner in which some trades are
entered into the market IMHO.

I try to apply price acceptance and minus development from the price bars and rely
on pivots from price.

I use both price and volume. All trades are both sells and buys, so I focus on
imbalances between buying pressure and selling pressure.

Trading in the present requires defining one's setups and trading those setups after
having tested them to determine the probabilities of one outcome occurring over
another. It doesn't involve guessing as to what's going to happen at some point in
the future.

I have attached a chart with some notes and a Question.


Can u comment??

The way I see buying pressure and selling pressure is as a "momentum of price
movement", as "the ease of movement" and path of least resistance. Ways this
shows on a chart are , price bar crossover, bozos, dojis etc.

Am I on the right track??

The question I have asked on the chart is about the possibility of the buying/selling
pressure dynamic giving a failed signal.

Can u comment on what I have written on the chart.

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Going over this stuff in hindsight is easy because one can say Oh, well, of course.
However, I agree that you were right to at least hypothesize that selling was
becoming exhausted, not so much because of the price bar since it closed at the low,
but rather because of the quick rebound in the next bar. If you have the option of
showing ticks, this may be easier for you to see if you toggle your chart to them.
Focusing on "bars" can be a trap as it encourages you to think of them as indicators
rather than arbitrary divisions of time.

And you are correct about the lack of enthusiasm for the rally. Note that there is a
zone of trades from 0940 to 1030/35. This is where the subsequent rally stalls.
However, it's important to understand that demand is not sufficient to push price
past this zone, regardless of the number of buyers. In other words, low volume in
and of itself is not the determining factor. In the end, the buying pressure apart from
the number of buyers is insufficient to push price past that zone. That plus the lack
of buyers kills the movement.

As for your bar C, avoid making too much of any given bar. This bar will exist as
such only in this particular bar interval. If you were to use a 1m chart or 10m chart,
it would look quite different. Having said that, the bar is not a bozo since it doesn't
close at the high. Instead, it fails to hold at the high and drops back to that zone. If
the pressure were on the buyside, it is here that it would most likely show itself.
Instead, price waffles around and fails.

As for the "failed signal", I can't provide an answer since I don't know what you're
using for signals, so I can't say whether there is a signal failure or not. What I see is
that buyers can't push price past 17, much less reach the opening high. This creates

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a lower high, moving the pressure to the sell side. It would be difficult to fault using
this as a "signal" to go short.

Thanks. I've quoted the part of your reply that answers what I was trying to ask: "If
the pressure were on the buyside, it is here that it would most likely show itself.
Instead, price waffles around and fails." That's what I meant by failed signal. Do u
use this failure as a trigger to go short.?

In my chart, pt. C seems to be where early-bird shorts with tight stops got taken out
and then the mkt went down. Seeing that buying pressure failure, would that be a
logical place to go short? Could one expect a bigger move with that buying pressure
failure??

That's where the rubber meets the road and the beginner stops being a beginner.
It's up to you to find similar "patterns" in other charts, determine why price
sometimes reverses and sometimes resumes the original direction, determine where
the best entry is that will make the probability of a reversal high enough for you,
determine the narrowest stop you can use without getting shaken out (and the
conditions under which you'd take the opposite side of the trade, i.e., fade yourself),
determine what the most reasonable price target is. Then forward-test it using old
charts, then paper-trade it in real time.

Seems like a lot of work to answer what may appear to be a simple question, but
that's what it takes to gain confidence in your abilities as a trader.

Can you explain what a bozo pattern is . . .

A bozo is just shorthand for "marubozu". I picked it up from somebody else . . .

Volume is only a piece of information. If you're trading an instrument that does not
have volume, don't worry about it. Price is king anyway.

In currency pairs, you have S/R, S/D, trends, trading range, price, and the speed in
which trades are being made. Plenty enough information to make a choice on a
trade.

Trade what you can afford; it all takes time.

How do u perceive "the speed in which trades are being made"??

When price approaches S/R , I view the main trading page, and observe the price
change window. In that window, I can see how often the price changes.

For instance,starting around 8:00 am NY time, when the price is in between S/R,
price will only change about every 7-10 seconds or so. But when price approaches
S/R, price will change every 1-5 seconds or so ( just guesstimating the time).

Just watch, and you'll notice a change in speed, depending on where price is at, time
of day, and pending econ. reports. Observe the action of the price bar while

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observing the change of speed, and notice how the price bar reacts. Otherwise, It's
kind of a waste of time.

Wyckoff referred to this as well, though he didn't go into any great detail. Basically,
it's similar to walking into the kitchen in the middle of the night and flicking on the
light to watch the cockroaches scatter (or, if you live in a cockroach-free locale,
running into the square and scattering the pigeons). At bottom, this is what
separates true S/R from synthetic or genuine imitation S/R. If nothing happens at
what one thinks is S/R, then by definition it ain't S/R. There needn't be fireworks,
exactly, but there has to be some interest. Otherwise, the probabilities of price
moving one way or the other are shot all to hell.

Anyone care to have a go on hindsight where they will enter and why?

I am trying to learn.

You've done a nice job of locating most of the potential and realized levels and zones
of S/R, but you're asking the wrong question.

If you trade the long side, you're going to want to enter at or near a point at which
the downtrend turns and becomes an uptrend. In order to do that, you're going to
have to determine what constitutes a trend, what constitutes an uptrend and a
downtrend, how to determine trend strength, how to determine trend change, how
to determine trend reversal.

Once you've done all that (which is much simpler than it sounds if you can draw a
straight line), then you have to determine what your risk tolerance is, and many
people can't do that, unfortunately, until they've begun trading with real money.

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But, assuming that you're aggressive, you'd want to enter at the first indication of
trend reversal. You would not wait for confirmation. As for stop placement, it helps to
have a very clear distinction in mind between aggressiveness and recklessness.

On the other hand, if you're more conservative, then you'll want to wait for some
sort of confirmation, such as a higher low.

Once you've decided all that, then you go over your charts and you find those
"setups" which meet your criteria and determine whether or not price actually does
move in the desired direction. If it does more often than not, then you may be on
the track of a reliable setup. If it doesn't, then it's back to the drawing board.

Asking someone where he'd enter makes sense only if you share his goals, his
objectives, his timeframe, his risk tolerance, his price targets, his stops, and so on.
Granted that if you received many replies, you might be able to get a sense of the
gestalt of S/R, trend, demand/supply and so on and proceed from there, but it's
highly unlikely that you would get enough replies to your question to do so. Instead,
you might get at most one or two, and instead of conducting your own investigation,
you'd test somebody else's assertions, which is pretty much the same thing as
trading somebody else's strategy.

Therefore, go back to your chart and find those levels or zones which look to you to
be the most propitious levels or zones to enter, then figure out how you would do so
in real time. Then you can begin developing some criteria for yourself.

I think one might make an argument that professionals are less likely to be caught
on the wrong side of the market. The daily experience of seeing price wiggle around
makes it less likely that they will be "shaken out" of a position on a on a transient
spike up or down. Retail traders on the other hand seem to exhibit several
predictable characteristics as follows:

1. They don't use stops, or

2. If they use stops, they are not set wide enough, and

3. They may look at a chart, see a quick spike in the wrong direction, and find that
they no longer have the courage of their convictions (lack of experience). The result
is they enter a market order to bail out.

I suggest that wider stops are not necessarily the answer, that re-examining one's
entry tactics may be more pertinent. Wide stops can blow out an account just as
surely as no stops at all if no consideration is given to the probability that the entry
will be successful.

As for convictions, I don't see courage as an issue so much as whether one ought to
have convictions or not. Since the outcome of any given trade is unknowable, there's
really nothing to have any conviction about other than to follow the trading plan.
Having convictions can in fact be one of the most damaging characteristics than one
can adopt if they persuade him to trade what he thinks rather than what he sees.

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Just for Fun

1. $ makes a LrL and closes at the low, but there's no increase in trading activity.
The next day, trading activity increases, $ rebounds and closes near the high (buying
pressure exceeds selling pressure). The next day, trading activity increases yet again
and $ tries to make a HrH, but falls back below the high of the bar. Trading activity
declines dramatically thereafter, but price rises anyway. Why? Selling has exhausted
itself.

2. Trading activity increases from the 2nd to the 3rd week in October and $ declines.
Selling pressure is increasing. However, when $ tests S, trading activity increases
and $ closes at the high. Buying pressure gains the upper hand. Volume then
declines, but price rises anyway. Why? Selling has exhausted itself.

3. . . . ?

Here goes, I will start my analysis in the last week of Feb, at the high.

Up to the last week in February, price has been rising nicely with little volume,
buying pressure clearly overwhelming selling pressure.

In the last week of February, volume increases, buyers run into sellers and the
sellers win out, with $ closing down for the day altho not at the low - $ is clearly
running into some form of overhead resistance.

The next bar volume increases again, and sellers are again clearly in control, altho
the buyers struggled to hold prices up - after all this increased volume, we will be
wondering which side is spent, are sellers done or are buyers done.

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The second week in March it seems clear that the buyers are done, sellers are in
control with price closing at the low .

The third week in March $ runs into support at 30 (formed in November & December,
marked on attachment), sellers are in charge and then buying comes in and price
closes well off the lows at support - $ is still slightly down for the day, so selling
pressure still in charge, however not as dominant as before.

The last week in March volume is well down, buyers try and push price higher,
however it takes very little volume to overwhelm them and price again closes down
on the day.

The first week of April sellers come into the market in size, buyers who are
underwater may be selling their positions when support is broken, and the result is a
nice long down bozo on good volume - thinking possible selling climax here

A note on support levels here, i would say that the zone between slightly below 28 to
26 represents a solid support zone, and this down bar closes right in the middle of it.

The second week of April buyers come back in and try to defend $, however $ is
easily beaten back down by sellers, and although $ is up on the day, buying pressure
& selling pressure are pretty equal here. Another point, if the previous bar was a
selling climax, we would expect to see less volume on this bar (I think??), and
buying pressure asserting more control, so although we cant rule it out, the
probability of the previous bar being a selling climax is reduced.

The third week of April is another high volume tussle, with niether side gaining
advantage.

The fourth week of April, volume drops significantly, $ rises nicely, and it looks to me
like sellers are done, & buying pressure is once again dominant.

The first week in May proves this thinking wrong, as selling pressure once again
dominates, volume is still high, but not climactic, and we again have a nice bozo
down, although not as big as the first bozo - not sure how we could have foreseen
this?

Of significance here is we have a lower low, we can draw a tentative supply line in.

The next 2 bars again represent a tussle, buying pressure seems to be coming back
in.

Although buying pressure does seem to be coming back in, the downtrend is
established until we get a higher low.

Apologies for the length of this, got carried away, Db plse delete/edit if necessary.

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not sure how we could have foreseen this?

Depends on what you mean by "foresee". Given the length of the rise, it's not
unreasonable to expect S levels to be tested more than once. And if there are
multiple S levels, as in this case, particularly if they are close together, as in this
case, one has to be prepared either for a bounce after that April bozo or a further
test, in this case of the much more important S level at 27.

What is important to note here, though, is that although the test in May represents a
lower low, the volume on the lower low is less than on the previous low in April. This
suggests a certain exhaustion in selling, and represents the same dynamic as the
charts I recently posted showing the May 2 buypoint. This does not mean that price
will rocket from there; it may only seek equilibrium for a while. If one can detect the
signs of this search for equilibrium in real time, he can avoid getting caught in chop.

The "macro" chart is, for now, of interest because of the context, and the
preparation for the advance. This will be revisited.

As for the area within the box,

1. There is nothing particularly climactic about this, but the angle of ascent is visibly
more severe than previous advances. It is perhaps for both these reasons that $
hovers here for more than a month.

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2 & 3. Note that within these groupings, the volume is relatively stable while
remaining strong. $ is also relatively stable. This suggests a certain "jockeying" for
position. A tug-of-war. This is apparently resolved to the downside the second week
of April, but buyers rush in the following week to propel $ back toward the previous
week's high. This is met by further selling, but the trading activity is consistent.

4. . . . ?

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I will have another bash at area 4 - hopefully a more concise one...

The last week in April volume dips, buyers & sellers remain evenly matched, however
in the next week sellers overwhelm buyers on slightly increased volume, price closes
very near the low, however we are heading into potential support area now,
illustarted by DB's horizontal lines in the post.

The second week in May, price opens even lower, however buyers come in during the
day, volume picks up, and prices rise, closing slightly off the high indicating potential
weakness.

One point to note here is that in the decline to support volume has not been as high
as the volume in the big bozo down first week of April, suggesting sellers may be
drying up (or buyers potentially, however looking at price action at the support level
would indicate that sellers were the ones running out of steam)

The last bar is a nice strong bozo up on less volume, indicating that selling is done.

2 more points to watch here

1 - If we had drawn in a supply line this line would be broken to the upside,
indicating potential trend change.

2 - 42 is a potential resistance area ( was where the last swing high formed), need to
watch what market participants do here.

Let me know if i am completely off target, thx

Very nice, esp the following:

One point to note here is that in the decline to support volume has not been as high
as the volume in the big bozo down first week of April, suggesting sellers may be
drying up (or buyers potentially, however looking at price action at the support level
would indicate that sellers were the ones running out of steam)

To All Those Who Are In A Hurry:

For some reason, most of us feel compelled to do something about whatever it is


that we're studying. But gathering data has a purpose in and of itself. Don't concern
yourself with how you might profit from whatever it is you're observing. Focus on
understanding it. Give objectivity a chance to take root.

Eventually, this becomes almost a drill. The principles are what they are, and
applying them becomes almost automatic.

1. As an important test approaches, trading activity increases. Buying pressure wins


the day (effort), as can be seen by the relationship of the high to low in the bars
(result).

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2. Trading activity here is far less than at "1", and $ makes a HrL, suggesting that
sellers aren't interested in pushing $ lower (if they were, trading activity would be
higher). As it is, buyers are able to retard and reverse the decline with little effort.
However, they are not able to do much more than make a new swing high.

3. The third time is supposedly the charm in some circles, and S is supposed to
break, but buyers have other ideas. Loads of trading activity and an almost climactic
selloff, but $ ends up off the low and can be propelled back to the swing high with
almost no effort at all.

4 & 5. Trading activity tapers off as $ reaches R. This is not necessarily a bad thing.
$ may be preparing for an advance. But trading activity increases on the way down
to test S, and buyers lose their resolve when the time comes to fish or cut bait. $
fails to break through, telling sellers that their time may have come.

6. . . . ?

I'll have another go at area 6, practice makes perfect...

After $ has moved in the tight range from Nov to Feb, Selling pressure dominates in
the first week of March and price breaks below support on high volume. This
breakout is followed through on the next bar on even higher volume, forming a nice
bozo down ( appears that buyers who were long anticipating the upside breakout are
throwing in the towel here).

Downside momentum is retarded over the next 4 bars, volume decreases, as we


approach potential support.
Price rises on what has become average volume, and the last week in April buyers &
sellers come in again in size, however neither side is dominant and price forms a nice
doji.

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Of note at this point is that $ has formed a higher low than the lows in areas 1/2/3 -
yet to be seen if this holds, & we get a higher low after this.

After this doji, selling pressure dominates, however price closes off the lows, next
bar buying dominates (if we smoosh the 2 bars together we have a nice hammer)

In the last 2 bars $ price rises nicely on low volume - are sellers done? - we shall see
what the reaction is as when we get to potential resistance, which is not too far
ahead.

All of this occurs in what has become a nicely defined range between 27 and 30.5

Again, very nice. Any suggestions on why I put a question mark after "Tst"?

Is it because $ never really gets down low enough to properly test support, but finds
support at a higher level, thereby making a higher low (compared to the low in
October)? Tha’ts the only thing I can think of.

Almost.

If S/R is an essential -- or at least important -- component of the tactics, then


trading it in real time can present certain challenges. One of the more important
advantages of trading S/R is that most of the planning can be done in advance.
However, S/R can sometimes present itself in unexpected places, sometimes
because one just didn't see it, and sometimes because no one did.

In this case, one could reasonably expect a test of 27. But S was found at the body
lows of the last swing low instead, and holding stubbornly to a conviction that $
would reach 27 despite the unfolding reality of the situation would mean missing the
best opportunity to enter. Trading in real time means being alert to what to you are
unexpected reversals and incorporating them into one's contingency plans rather
than be intimidated by them.

1. and 2. What may be a familiar pattern by now: potentially (at the time) climactic
volume on the downside, lighter activity on the test resulting in a HrL.

3. Another HrL, but no test of anything in particular (characteristic of a retracement).


If one is relaxed, a small bell might ring when higher volume (an increase in trading
activity) is unable to drive $ lower than 26.5. Even though some might consider the
so-called "candle pattern" to be bearish, this inability of sellers to drive $ lower is
just the opposite, what I call The Dog That Didn't Bark (Brits will know why ). The
rebound is aggressive, and, by now, the fact that trading activity is substantially less
should not discombobulate anyone who is viewing this as a movie rather than as a
slideshow.

4. and 5. The angle of ascent tapers dramatically, and if you've been through the
whole indicator thing, you know without looking at them that the slosto will be
"overbought", the MACD histogram will show a "divergence", and the MACD itself is
crossing or is about to. But you don't have to look at them to know this. The dog
wags the tail after all. Trading activity is higher on the test that results in the DT, but

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it's no higher than the activity on the dip, which is not good, not because the activity
is weak per se, but because the result of the effort is unsatisfactory, i.e., price fails
to make a higher high.

6., 7., 8 . . . ?

In March $ shows weakness after the double top closing at or near the lows on every
bar. Particularly the first & third weeks of March where the volume is noticeably
higher than average, and buyers clearly tried to take $ up, they were easily beaten
back to close well down.

The first week of April volume is nothing special, but sellers have more intent here,
and they take the price down easily, to test potential support formed at approx 28.5
- the fact that price does not get there could be significant..

7&8 - Volume picks up considerably, and the result of the increased volume is
positive, with sellers unable to take price down further, the first tentative supply line
that could have been drawn in would also now be broken to the upside.

In the bigger picture, although the uptrend/demand line may have been broken,
signifying a potential trend change, and we have a lower low, a trend reversal would
only take place when that whole basing area (bottom at 26) has been broken
through to the downside

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1. and 4. Good examples of how price can move substantially with relatively little
trading activity if there's not much counter-pressure being applied.

Anyone care to tackle the other notations?

2 - After the angle of ascent has increased considerably in Dec/Jan, sellers come in
size - profit taking, whatever, after they see that it looks like buyers are running out
of ammo on the high bar which closed on the low on very little volume. For all that
effort, one may have expected a little more result, however price closed off the lows,
and only the follow through would be able to tell us which the dominant size would
turn out to be.

3 - Selling pressure takes price down through the first level of resistance, but again
is unconvincing, with price closing off the lows, suggesting at least some semblance
of support.

TDTDB - To me this is the area that if broken would signify a trend reversal, so we
would expect it to be a reasonably strong support level. I’m not too sure I
understand "the dog that didn't bark" correctly, as I understand it we are right at a
crucial level here, and if sellers were going to get price down, there should be a lot of
effort with a lot of result, taking us through this support level. As it happens, volume
increases slightly, the effort is good (down) but not spectacular, doesn’t even reach
the lowest support level, but from the following bars it is clear that sellers are done,
and price rises on little volume.

E/R - The second to last week in October, volume increases significantly - I would
have expected price to have a better result with this volume, and break through the
resistance, however the result is not significant, a small up bar. The next bar it looks
as tho buyers are done, selling pressure takes price down easily, but then buyers
come back in and take it up just as easily, all on low volume - real tug of war.

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The next couple of bars volume is reasonable, & it looks as tho sellers are gaining
the upper hand again, with $ closing near the lows.

Thx Db for providing these exercises, it makes a big difference writing this all down
as compared to running it through in your head

I've been through these posts more than once and have come to the reluctant
conclusion that I am incapable of reading anything meaningful into volume figures .

. . .it is unlikely to be either better or worse than any mechanical method which has
been reasonably backtested and is coupled with self-discipline.

Not everyone is. And if one trades something that doesn't provide "volume figures",
as you call them, then he will have even more difficulty assigning meaning to
something that doesn't seem to be there.

Volume "figures" are, of course, largely irrelevant to the task. As are volume bars.
What does matter is trading activity, which is what volume "figures" and volume
graphics are supposed to illustrate. But few people are able to get there because
they attempt to learn how to incorporate the dynamics of trading activity into their
trading by reading message board posts rather than by watching price and "volume"
move in real time. One can post illustrative examples, as I and others have done,
but regardless of whether they are examples of what happened several years ago or
five minutes ago, they are by their nature hindsight. The only way to surmount this
obstacle is by tracking these movements with somebody in real time in some sort of
chat room or by IM or video replay or whatever.

And as for the testing, yes, of course. Only through observation and testing can one
determine the truth, as opposed to hanging on some guru's every word or on what
one read in a book somewhere. I'm sure you've read, for example, that one should
"never short a dull market", but I've found no truth in this at all. You've probably
also heard or read that one shouldn't trade at all if volume/trading activity drops
below some threshold or other, but I haven't found any truth in this either.

Unfortunately, 95% of the people I've "worked" with are unwilling to do the work.
And without the work, it all just lies there. But only through testing can one
determine whether or not something works and why and why not. For example,
there are various opposing camps with regard to the so-called "Ross Hook", which is
essentially a variation on the Dunnigan One-Way Formula and nothing particularly
original (though nothing during the past few decades has been particularly original),
as well as Bollinger Bands, Fibonacci, "pivot points", MAs, trendlines, etc. All of these
features "work" sometimes and "don't work" other times. If, however, one were to
incorporate a knowledge and understanding of support and resistance into these
efforts, as well as the dynamics of trading activity, he'd very likely learn much that
was valuable regarding when all of this is likely to "work" and when it is not likely to
do so.

Note also that one need not receive a "volume" feed in order to incorporate trading
activity (which, again, is all that volume is) into his tactics. One can determine by
watching price movement alone whether trading activity is lackadaisical or fevered.
This can't be done in a hindsight chart, of course, but it is obvious in real time. And

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the point of locating potential levels or zones of S/R in advance is to enable the
trader to anticipate that activity (as with the charts I posted in early May).

None of which is to say that you must understand all this in order to trade well. But
you might also be misinterpreting the purpose of the work and, therefore, not seeing
what is there.

Or maybe not.

You seem to have put your fingers on my problem. I don't watch real time charts. If
that is the reason for my lack of understanding of volume then there is no solution to
it. I study daily charts simply because I have no time to do otherwise. Trading is,
very much, a pastime for me, although that is no reason not to be good at it, like
woodwork, sailing or anything else.

That lets me out gently. I'm not as daft as I thought I was!

It doesn't have to let you out unless you want it to.

The process is practically unvarying, and unfolds according to principles that


manifest themselves again and again.

For example, using the chart I posted earlier, the first task is to locate potential S/R.

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In this case, "2" is potential S from the previous year (this is obviously a daily chart,
but the principles apply regardless). Therefore, when price pauses at "1", one is alert
to a potential reversal in advance of the test and draws a line there.

Price "rallies" slightly, but falls through that line in order to continue with the test.
The trader notes the trading activity accompanying "1". When S is tested at "2", he
notes that, although there is a "lower low", the trading activity is considerably less,
suggesting that selling is exhausted. An aggressive trader buys here with a stop
below the swing point. A less-aggressive trader waits for a retracement of some
kind. This occurs just before price reaches the line drawn at "1". There may be a
failure here or there may be a continuation. "Volume" doesn't provide any compelling
clues one way or the other. So he looks for whatever signs of reversal he's found
through his testing or he waits for a continuation, if any. Price stalls here for quite
some time, so he draws a second potential R line at "3", just in case price runs into
further R there.

Eventually, price breaks thru both these levels. Maybe the trader buys this BO or
maybe he doesn't. His choice. Maybe he waits for a retracement, which occurs
shortly thereafter when price returns to R become S at the line drawn at "3". He then
draws the next potential R line at the most recent swing high.

Trading activity, or "volume", is relatively quiet throughout, demonstrating yet again


that powerful volume is not required for substantial moves. All that is required for
substantial upside is a lack of selling interest, clearly evident here due to the fact
that price can rise without much effort.

These are the same principles I've stated again and again with multiple examples.
There are only a handful, and they quickly become repetitive. There's no mystery.

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Nothing labyrinthine. One only has to trade what he sees without bias as to what he
thinks or "believes" should be or ought to be or has to be.

And another.

Price breaks through that swing high from the retracement to "3", retraces a bit, but
doesn't even make it all the way back to the line, suggesting a preponderance of
buying pressure over selling pressure. "Volume", again, is not enormously compelling
one way or the other. One has to focus on price. Since there's no important S/R
here, there's no reason to expect a lot of trading activity, though one must be open
to any eventuality.

Price continues all the way up to a December high with no "volume" spikes.
However, when an attempt at a higher high is made, traders aren't interested. The
fact that the activity reflects the holiday is irrelevant. Price doesn't make a new high,
and that's that. It then begins a precipitous decline and trading activity at last
increases, suggesting that sellers are at last coming into the market and
overwhelming demand.

Same principles as always. Bars not required.

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I can see a long and hard road ahead for anyone who wishes to learn this type of
trading.

When I look at your charts, it seems so easy. When I look at my UK stock charts, it
often seems extremely difficult. (It's like watching the Brazilians play football: looks
so easy, but just try playing like that...). I really struggle to see any pattern in many
cases. Some of the signs are easy to spot: e.g., breakouts on heavy volumes,
reduced volume on pullbacks, long bullish candles on good volume etc. But many
stocks (on my daily charts) do not seem to follow any pattern at all, they continue to
rise for ever on low volumes, pullbacks are on heavy volume but they do not last and
so on.

Is it something to do with the market? I.e., do price-volume techniques work better


in certain markets than others? Or is it a question of me giving it much more time
before I start to see the patterns in any given market?

One more question: how long did it take you to master this art? I know it's a long
and hard road, but it would help me to some extent if I know what timeframe I am
looking at, e.g., couple of years, ten years, more...?

The easy answer to your second paragraph is to trade only those signals that are
easy to spot. But as for the specifics of the relationships between price and volume,
I'd have to see examples. Sorry.

As for having to do with the market, yes. Due to the enormous increase in funds,
arbing, hedging, whatever, the volumes on the indices are largely irrelevant,
maintaining a consistency that they didn't have thirty years ago. However, I'm not
sure what you mean by "price-volume techniques". Perhaps you're trying to apply
what you believe you learned in one timeframe with another timeframe that's
inappropriate. If, for example, you were to look at Farley's book, you'd likely think
that it all looks pretty clear and relatively easy. But nearly all his examples were
taken from a narrow window during the bubble period of five years ago. Applying all
of that to today's market [2004] would likely be problematic. More helpful might be
an examination of the '94 market.

As to mastery, probably never. To master this means mastering human behavior,


and few people are capable of that. Understanding it well enough to take advantage
of it, however, is another matter. I've said that I trade fear, but many people
couldn't care less about that. They have no interest in it. And whether or not they
can apply the principles of trading by price without being interested in trader
behavior, I have no idea. I should think it would be very difficult. But I haven't done
a study of it. It does seem, however, that those who think it's all baloney would
never even try.

In any case, it'll take more than a weekend seminar . . .

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Those who are interested in the interpretation of price movement, the relationship of price and
"volume" (i.e., trading activity, not inventory), and how all of this interacts with support and
resistance would have a tough time finding a better example than the movement of the major
U.S. indices over the past two-three months, particularly yesterday.

The question now is what the probabilities are from this point of an upmove or a downmove. I
hope that those who've read this thread have a handle on this by now. If not, analyzing the
movements during this period may help to tie up whatever loose threads there may be.

--Db

This is my understanding of where we are, using the S&P

1 - Weekly Chart - Momentum is clearly lessening, as evidenced by having to fan the


blue trend lines, and also by having to flatten out the red supply lines - meaning that
supply is coming into the market at relatively lower & lower levels. Trend is still up,
however there is a potential trend change at hand, as the last blue trend line has
been broken to the down side.

2 - Daily Chart - Again we can see from having to fan the 2 red trend lines that
momentum to the upside is lessening.

In the A-C area, we have a healthy uptrend, the uptrend is broken in the C-D area
however bulls would probably be calling this a normal correction, as volume is
relatively low in this area.

Price reverses at D, slightly above the previous swing low, this too would still be
bullish as we have a higher low.

Bulls hit there first problem area in the D-E zone where price makes a lower high and
this should be the first major warning sign for the bulls. Also worrying should be the
very high volume day around the 19 September, which failed to propel price to new
highs, looks like a lot of distribution is going on.

Price turns up again in the latter half of September, which forms a nice coil (blue
lines). Shortly after E price falls through support in the coil.

The current question is will price hold at current levels, being the level of the swing
low formed at end June.

And to me that is also the significance of 2050 in the Nasdaq, it is the bottom of the
potential resistance zone & last major swing low prior to the high.

If this level is broken to the downside, the trend would officially have turned down
(at least by my definitions....)

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Very nice. Swing highs and lows can and often do provide S/R, but among the more
important S/R levels are those at which the greatest number of people have the

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most to win or lose. Price has spent the last 16 weeks at this level (+/-). That
represents a lot of trades. If price can't hold here, an awful lot of people will be
under water, and they'll be concerned. This is essentially the same dynamic
represented by the "head and shoulders", though most people focus on the pattern
rather than why the pattern formed in the first place, resulting in their not knowing
what to do with it.

For future reference, this is also why climactic tops and bottoms of swings often
don't provide S/R, because so few trades are taking place at those points (which is
why the reversals occur in the first place).

--Db

[Note, 2008: Gavin was indeed correct about the significance of 2050 on the
Nasdaq; price held there in October, 2005, and again when tested in July,
2006, subsequently rallying nearly 700 points.]

That seems to assume two things: that a high proportion of the positions opened at
that level are still open, and that the most significant level for holders of those
positions is that level itself, i.e. breakeven, rather than, say, targets based on prior
S/R, fixed dollar targets/stops, time stops, TA-derived signals that trigger in the
meantime, etc.

If those assumptions were valid then the above quote would be the natural
conclusion, but how do you gauge whether they are valid? If the great majority of
positions opened at that level were closed in the meantime then those traders
wouldn't care about that level now, at least in terms of their current positions. Any
thoughts on how you can gauge this?

Experience. And while that may seem coy, that's pretty much what it comes down
to.

If all or a substantial portion of all the shares bought in that timeframe in that zone
have already changed hands multiple times, then support and resistance and chart
patterns are purely imaginary, and new highs and new lows have no significance at
all. But anyone who's ever seen a short-covering panic or a cascade would think
twice about dismissing all this.

There is also the issue of what you're looking at. If it's a small cap and the inventory
of shares turns over in a fairly short timeframe, then S/R are more likely to be
flimsy. But if it's a large cap adored by B&Hers, then one can expect much less
turnover and, consequently, more significance in important S/R levels.

There are also a number of conventional wisdom nuggets that are held onto and
often unexamined, such as the significance of "52-week highs". This used to matter
because of taxes (otherwise, "52" would be purely arbitrary), but whether or not this
still holds true is open to new analysis.

Because I've been doing this for so long and because I focus on trader behavior, I've
seen what are for me significant changes in this behavior over the past two years,
causing me to make a number of adaptations, such as switching to 1m charts. Even

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so, I see far more guessing now than I ever have before (I've heard that Justin
Mamis detected the same thing recently, which I found interesting).

But all of this simply reinforces the principle that one must focus on what he's
looking at, not on what somebody tells him he's looking at. The truth is in the chart,
and every bit of conventional wisdom, such as "high volume" on "breakouts", has to
be re-examined with fresh skepticism in order to be relied on. And the less one has
to rely on, the more the trading environment becomes a hot tin roof.

1: How can one go about analysing P/V when looking at EOD charts? Is it truly
possible to do so or is this type of study and analysis really only useful if one can do
it real time to see where the bulk of the trading activity took place.

2: Is there any testing software that can test strategies based on these ideas. As S/R
lines, trendlines, chart patterns etc are so subjective, I can't see how the ideas could
be put into a piece of software to test. It seems to me that only paper trading
historical data would provide an idea as to whether a strategy would work or not. If
there is some sort of software that could test it then I'd love to get my hands on it.

1. If one is using EOD charts only, he can get a sense of the flow of price and of the
dynamics between buying and selling pressure by plotting a chart with intraday data.
For example, plot 1m bars and zoom out as far as possible to get a continuous line.
Being able to plot volume as a line rather than as a series of bars is also a plus,
though not critical. One can also use "replay" and set it for a multiple of normal
speed, e.g., 10x.

2. No. Regardless of the claims that are made, no.

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I'm trying very hard to understand the relationships that move the market. Based on
essentials like support and resistance I try to determine a direction of the trend.
Price is the main element I focus on, using volume to support my hypotheses.
Therefore I believe I've read and studied enough material (mainly your posts and
your excellent PDF files and noted charts).

Unfortunately it doesn't really seem to work out, I've been trying at this for a couple
of months now and each time I think I got/see something and implement it after
successful backtesting, it just doesn't seem to work quite as often as I wish it to be.

Can you give me any feedback? I'm trying to look at this from other perspectives but
don't know what I'm missing or doing wrong here.

Attached you find a first chart where I noted my entry point.

Well, first, you shouldn't be trading with real money at all until you have this nailed.
There is no virtue in learning by burning up your equity. If you have no trading plan
that comes even close to being consistently profitable, then your entire approach is
based on hope. And now fear. Therefore, your focus is shifting from learning how to
trade price to learning how to avoid losing your money, and this is not the best place
to be in order to develop as a trader.

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You've asked some good questions and, for the most part, they are well within the
scope of this thread. However, questions regarding strategy and tactics are more
appropriate to a journal since they are specific to you and since they will likely be
ongoing, and this thread is plenty long as it is.

Therefore, I'm going to limit myself to principles here -- or try to -- even though that
won't be nearly enough. Somewhere you got off track. But rather than review what's
already been reviewed here and elsewhere ad nauseum in order to figure out exactly
where you wandered off into the weeds, let's focus on your charts, one at a time.
This is, in a way, a sneaky means of reviewing principles, but doing so through
application, which is the only way many people can learn, and which is the reason
why I've begun focusing on application rather than get involved in yet more
discussions on theory and philosophy which invariably turn out to be discussions of
what has already been discussed over and over again.

So.

First, it's clear that you've put a great deal of time and thought into this, which is
good. And encouraging. However, you refer several times to this stuff "working".
Support, resistance, and price are not a method or a system. The analysis of all this
is an investigation of how markets work, i.e., how traders trade. Once you
understand the dynamics of how buyers and sellers interact with each other, it is
then up to you to determine how best to take advantage of those interactions. In
other words, there will be no flashing red arrows which say "enter here".

Second, it's always easier to see thru the window after one cleans the glass, so I've
reduced your first chart to the basics, i.e., price and volume (though even volume is
not necessary, as you will see, and may even be a distraction). Since this takes
some doing, I'd appreciate it if you'd convert your charts to what I have below: no
channels, no S/R (support/resistance) lines, no trendlines, no colors other than black
and white.

Now. For the sake of simplicity, let's assume that life begins at the left edge and not
get into the backstory here (otherwise, we could be here all day). Note that price hits
5655 and recoils from it. It then drops below it to 5647.5, then rallies back to 5655
where it is halted. Ah Ha! Resistance? Probed once from the topside (twice if you
count the drop through) and now from the bottom side. This should cause a Hmmm
on your part, something to pay closer attention to. Price then waffles around (and
when I say Price I mean buyers and sellers) for a few bars, probes 5655 again, then
falls. However, when it drops below the last swing low (LSL) at 5647.5, it rallies back
in the same bar to close well off its low (if you were to look at a tick chart of this,
you would see the wave of the dynamics of the exchange between buying pressure
and selling pressure rather than a "bar", which would enable you to understand
candlestick voodoo much easier and avoid assigning quite so much "meaning" to
candlesticks and candlestick patterns). It's the closing well off the low that matters,
not the color of the bar since buying pressure had to exceed selling pressure in order
for this to occur. The volume bar tells you how much trading activity accompanied
this movement. But what matters is the movement of price since that's where you
make or lose your money.

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But this particular test is not yet over. Sellers push price down again, and this time
the trading activity increases. But what happens? Going back to what Wyckoff
describes as effort and result, traders put more effort into this movement (more
trading activity, i.e., higher volume) but the result is that price not only rebounds
above the low of the previous bar (or the previous swing low if you're looking at a
tick chart), but it also rebounds above the close of the previous bar, creating a
potential shakeout.

The proof, however, is as they say in the pudding. Look what happens to price now.
It rallies all the way back to R (resistance) rather than plunge lower, suggesting that
what looks like a shakeout really is a shakeout. It then breaks above R. Do you take
this or not? And here's one example of where trader-specific strategies and tactics
depart from "principles". There is no inherent good in taking or not taking this BO
(breakout). You can determine in part whether or not to take it by developing and
testing a trading system (or method or strategy or whatever you want to call it)
which incorporates trading BOs. If that system as you've designed it is consistently
profitable, then by all means take the BO. If it isn't, don't.

But whether you take the BO or not, traders again waffle around here, and while the
waffling can be frustrating and even prompt you to exit, the waffling does confirm
the importance of this level or zone (if it weren't important, price would breeze right
through it). There is yet another quick downdraft, and this time on heavy volume,

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i.e., substantially increased trading activity, the highest so far. Lots of effort here.
And what is the result? Again, price closes well off the lows, i.e., both buying
pressure and selling pressure increase (more trading activity), but buying pressure
wins the day. What matters, in other words, is not so much how far price travelled
downward, but where it ended up. This tells you who -- for the moment at least -- is
in the driver's seat. And if you have not yet bought the BO, you'd have a bit more
confidence in doing so now.

If you don't, you can wait for the retracement (RET), which is where I've placed the
second red dot. RETs disturb many novice traders because they think they screwed
up. They want to reach their target as quickly as possible. If they don't, they think
they're in trouble. So they cut their profits short. But rather than descend into flop
sweat fear, focus on what a RET represents to those who didn't buy the BO. This is
their second chance. And if they take it, you may be in for a nice, profitable ride (if
they don't, you perhaps have -- and reasonably so -- a stop at BE by now and aren't
especially concerned about it one way or the other). If you're one of the people who
waited, you can enter now. However, this is next best to taking the BO since your
risk is higher. You entered "late", placing you in the ranks of "weak hands" (i.e., the
first to bail when the going gets rough because they have no cushion or buffer). If
you wait even longer for further confirmation and buy (the third dot) when price BOs
past the last swing high (LSH), your risk is higher still, and you'd be in the red
almost immediately, though ultimately, if you insisted on hanging in no matter what
the risk, you might make a few bucks, or at least BE.

By now, you have a higher high (HrH) and a higher low (HrL). The third dot
represents the next HrH. Therefore, until you fail to make a HrH, you are in an
uptrend. Shorts are not an option. In fact, depending on your particular strategy,
shorts may not be an option even if you have a LrH if the LSL is still intact (more on
this later). Price continues its ascent, finally retracing its progress to find S (support)
at the previous swing high at 5667.5 or thereabouts. Entering here would be ultra-
conservative given all the confirmation but it would also be near-suicidal. The
weakest hands would enter even higher still, at the new high, which is where panic
sell-offs are conceived. It then rallies yet again, making what is in hindsight "the
high".

But what now? You're trading in real time. Hindsight is a luxury you don't have (and
note that I've said nothing about volume so far exc with regard to the shakeout
because it's not esp relevant or even helpful). What does price do? It retraces. But
how far does it retrace? Does it drop below the LSH at 5677.5? Hmmm. Seems a bit
weak, doesn't it? But you're up almost 40pts, so a little rest is in order, not unusual.
Perhaps price will consolidate here for a while and buyers will prep themselves for a
push to a further advance.

And, apparently, they do. But when price reaches the previous high, it runs into
trouble (if you're waiting until now to go long, I can't help you ). It appears to form a
double top (or a LrH if you're using candles and pay more attention to the bodies
than to the wicks). Here again volume can be helpful to you since the trading activity
here is FAR less than it is on the previous high, suggesting a lot less buying interest
(not so much because of the amount of trading activity per se but because price isn't
rising). Thus, if you were to SAR here (stop and reverse), you'd lock in the profits on
your long and be at near the best possible position for your short (near best because
your stop could be so near). This last, however, gets into strategy and tactics and is
best left to your journal, if you choose to pursue this.

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If shorting there is too aggressive for you, you can wait until your trendline is broken
(not drawn in here, but I hope it's obvious) and the reversal confirmed, i.e., a drop
below the LSL, which is where I've drawn the lateral red line at about 5671. Note
that it is on the way down to this line that the trading activity increases. The
importance of this line is confirmed by the extreme dryup of trading activity just
before price breaks thru this line and the teeny-tiny bars that are the result of that
activity. Then donk!, at which point you might want to enter your short, even though
the stop must be much farther away and your risk much higher.

Again, you can wait for the RET, though this one repenetrates -- temporarily -- the
S/R line (the last red dot). This is safer and represents somewhat less risk, not so
much because of the price entered but because of the confirmation of weakness and
because of the possibility of a tighter stop. But there clearly is weakness here along
with a confirmed reversal. There is no long here, only shorts. (If somehow buyers
manage to pull it together and reverse the reversal and make yet another attempt at
a higher high, you at least are out with a profit on your long and perhaps a tiny loss
on your short. And it happens. But that's the difference between trading in hindsight
and trading in real time.)

Then, of course, WHAM! The weak hands cry Uncle and you've plunged 25pts.

As for predicting, don't even bother. Even if the attempt weren't so difficult for the
novice (and often the not-so-novice) and didn't take so much time, it wouldn't
matter. If and when you thoroughly understand what's happening in front of you,
you'll know what to do, or at least what is likely to be the most appropriate course of
action. If you allow yourself to sink into the muck of the minutiae of what each itty-
bitty bar "means" and how it "relates" to every other itty-bitty bar, the trade will be
long gone before you ever decide what it is you should do. Focus instead on the
setup, on the conditions for the trade. This is where principles will guide you. But you
must then decide exactly what it is that you're going to do if and when the conditions
are right. Predicting what will or won't or might or might not or should or shouldn't
happen after the trade is entered is wasted brain time. Knowing what you will do if
and when certain events happen is part of your tactics and has been planned out
long before.

Here's the chart with the demand lines/trend lines in case they're not so obvious
after all.

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I must say your "step-by-step" guide following this chart is very interesting for me.
Before I try it myself, I'd ask you to review [the attached] chart, if you could analyse
and comment on that one, I think it could clear up my head a bit. Next week I will be
papertrading as I believe my losses have amounted too much and I'm trying not to
be emotional about it - but it's not that easy. Now the only target for me is to get a
clear understanding of it and put my theories back to the test although I must note
that I've had several profitable days always. Albeit you might argue this was just
luck, I hope all my time and effort weren't in vain and I'm going totally the wrong
way. If so, please let me know, otherwise I'm looking forward to your comments.

[This is] a continuation of the [first] chart. I believed it to be a SC, at about 11:40.
But it continues to go lower till around 13:20, after which the selling is over. I know
the market can do anything at any time, but this one troubles me, I can't seem to
find a reason as to why the market goes down after 11:40. Even though I don't need
to understand everything to be successful as a trader, if I keep entering at these
signals that mislead me, I'm in need for a better understanding as to why I'm getting
it wrong most of the time...

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You weren't wrong. 1140 was in fact a selling climax (the SC). But a selling climax
does not necessarily mean an end to the move. An SC is equivalent to stomping on
the brakes at high speed: even though the brakes are applied, the car continues to
move forward. Or compare it to throwing up. The big chunks come first and fast, but
you continue to toss it up even so, eventually ending in dry heaves. (And I use this
analogy because so many of The Wise use vomiting as a metaphor for capitulation.)
In this case, the SC is a big red flag, but not necessarily a "buy" signal. Same thing
happened with the market as a whole in 2002. The SC occurred long before the
eventual bottom. And there was no buy signal (at least none in my book) until spring
of '03.

In any case, note where price stopped after the SC: dead on the S/R line where all of
this started. And the importance of this line is confirmed again and again by the
repeated tests of it during this consolidation (and the weakness of buying interest by
their inability to push price above what appears to be 5662.5).

Then, when buyers finally yield and allow price to find equilibrium, or try to, it
spends no time at all at the next low but immediately tests yet again that S/R zone.
The fact that it breaks back into it is as strong a signal of serious buying interest as
you're going to get in this world (if the buying interest weren't there, price wouldn't
have risen). Not that I would go long here, but, if I did, I could have a hell of a tight
stop.

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To try to predict all of this, though, would not likely have had any benefit to you,
assuming that you could do it. Attempting to predict these movements would more
likely guide you toward a bias and prevent you from seeing what was in front of you,
or, as Douglas put it, prevent you from "being available". These perceptual biases
are often the cause of hanging on to losing trades.

Realistically, how long do you think it would take a beginner to go through the steps
you suggest to study the principals, tactics, and develop/test a trading plan and
acquire the correct mindset.

I know this'll be variable, but from your experience what's the least amount of time
someone has picked all this up in ?

It's been said before that it takes 1,000 hours to learn something, maybe 5,000-
10,000 to master it.

What do you think, could a complete novice pick this up in 6 months spending
around 8 hours a day ???

There are too many variables involved to provide anything approaching a satisfactory
answer. If, for example, the novice were literally complete, had nothing to unlearn,
had no preconceptions, was able to work without investing his ego in it, was curious,
was able to concentrate, was reasonably intelligent, then he would be able to get it
far faster than someone who was or had the opposite.

But if you're asking in your heart of hearts how long it would will should ought to
take you to "pick this up", that depends on how willing you are to focus on
application rather than theory (since you registered more than two years ago, you
very likely have had more than enough theory).

Some members tire of my continually encouraging newcomers to this subject to


open journals. But there's only so much theory. This thread, for example, has over
1000 posts (which is around 950 too many). The "theory" just isn't that complicated.
When it seems so, the reason is more likely that whoever is trying to understand it is
focusing on something else entirely (so and so says, or I read somewhere that, or I
took this seminar once that, or this book said, or but the ADX says). Therefore, the
sooner one begins looking at real charts, the sooner he is likely to "get it".

This search for instructions as to where EXACTLY to draw the line is in large part
what makes Pivots and Fib and Gann and MAs and so forth so seductive. One doesn't
have to think about just where it is that price (traders) really react. All the trader has
to do is draw the calculated lines. This search for exactitude also motivates the
search for the EXACT stop and exact TYPE of stop that the trader should use, along
with the EXACT trigger and the EXACT target. But if it were all that simple, one could
package it into a kit and sell it (wait a minute . . . ).

Many people can't get this. Maybe most people can't get it. They simply cannot trade
without indicators, they can't trade without patterns, they can't trade without
candlesticks, etc. And if they make money doing whatever they're doing, who's to
say they're not right to do it. However, a lot of people also struggle with all of that
and can't make money at it. They find instead that focusing on price is best for them.

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Unfortunately, by the time they reach that point, they have to unlearn an
extraordinary amount of what for them is generally -- or entirely -- useless
information (I've read that . . . People say that . . . I've been told that . . . ). This
state of affairs makes learning to trade by price vastly more difficult than it would
have been had the trader learned how to do it outright in the first place. But there's
no going back, this side of amnesia, so wanting to is simply wishful thinking.

The Go With the Force, Luke stuff only goes so far, true as it may be. But the
individual who's willing to backtrack and learn a new or at least different way of
looking at charts and price action may -- not will -- find that when he's looking at his
umpteenth chart, the light suddenly goes on and he understands all those back and
forth pressures which are propelling price one way or the other. All the babble about
pace and momentum and trend and chop and all the rest of it will make sense.

But there's no shortcut. One may have to look at hundreds of charts. Maybe
thousands. And he may never get it. Which is why people continue to spend so much
money on 4x Made Easy and Weekend Seminar (lunch included) and Profits R Us.

The average man does not like uncertainties. He is not trained to cope with
them. He will try to “sweep them under the rug.” He will use any device that
will make it possible for him to feel “more sure,” for he is not willing to accept
a “maybe” or an “I don’t know” as an answer.

And so he will resort to averages, to market indicators, to complicated charts


of intersecting lines designed to prove that “it” is either a Bull Market or a
Bear Market. He will accept almost any kind of nonsense if it is stated with
enough assurance. He will buy horoscopes to determine the trend of the
market by the position of the planets. If all else fails, he will look for some
authority who will relieve him of using his own intelligence, by making the
either/or decisions for him. But he must have a straight, simple answer;
otherwise it means nothing to him.

Do you see how this way of looking at things is out of line with the facts? Do
you see how it leads, inevitably, to frustration, anxiety, and demoralization?

It is asking too much of reality. It is setting up a make-believe world, and


then crying if the world isn’t exactly like the make-believe.

We know, for instance, that trees “in general” are round. But you have seen
tree trunks distorted by a cramped location, or by the trunks of adjacent
trees, that are not round at all. It is useful to know that “tree trunks are
round,” only so long as we understand that this is an abstraction, and the
reality in any particular case has to be looked at, and if it is not round, that is
that; the territory is the final answer, not our “map.”

John Magee

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The following series of posts, consolidated into one, was made several years
after the rest of the posts in this thread. But given that this "abridged"
thread is essentially a summary of the longer thread, and that this post
touches on most of the more important points of trading price, volume,
support, resistance, and so on, I'm adding it here as a way of wrapping
things up.

Out of interest, a question for those of you who use indicators:

How do you determine when to NOT trade from indicators? For example, on the Dax
today you should have stayed FLAT for most of the day. I only know of 2 indicators
that kept me out today.

Second question for those that DO NOT use indicators, how do you determine to stay
out of choppy/sideways markets like today? Is it as simple as drawing 2 horizontal
lines above and below the sideways action and simply trading a significant break
above or below these lines?

As a member of the party of the second part, I can't speak to the DAX as I don't
maintain a chart of it. But I didn't stay out of the NQ today. I entered shortly after
the open and stayed in until I got a reversal signal at support.

I posted the following a few days ago. The S/R zone of interest is 1750 to 1850, with
a secondary S level at 1800.

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Note here that there is a clear rejection of the opening price, which is 25pts outside
the S/R zone.

You mentioned a clear rejection of the opening price based on that high volume, but
without any other point of reference than those 25 points off from the major S/R
area, how can you know that the peak in volume isn't just occurring because the
market just opened?

Doesn't matter. Price is at R, there's a surge in volume, price falls.

These charts that may help clarify. The first chart is a CVB chart (Constant Volume
Bar). It provides the context (or at least some of it; this illustrates a few days; the
relevant S/R zone on the NDX chart posted earlier represents six months; six months
trumps a few days). Clearly there is a lot of sludge to work through if one wants to
get past 1920. And then there's another layer up to 2000. As for "short-term" R, one
can draw a line through the middle of all this, but I find this distracting more often
than not, and it can set up an anticipatory mindset that prevents one from focusing
on the volume activity as it is as opposed to what it might be or will be or could be or
whatever.

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The second chart is a one-second chart of the open. This may be a more graphic
illustration of the "hot iron" comment I made above.

If that's not enough, there's a springboard at 1850 a few minutes later (shown
below), and one can short that. If he's not confident in the short, he can bracket. Of
course, if he hasn't thought about any of this before the open and/or doesn't know
what to look for (which is one of the functions of hindsight charts), then he'll
probably just sit there and do nothing.

It seems hard to reconcile S/R zones on such a big time frame with 1-minute charts.
As you say, the zone of interest, is as wide as 50 points, so you'd need either very
wide stops or you need to find some minor S/R zones in the meantime...

What matters is the point at which price hits R and what happens there. It makes no
sense to me to use an hourly chart or whatever and wait up to an hour to see what
happens. If traders are reacting to R, why wait? Waiting requires a much wider stop.

Those who perseverate on bar intervals are likely using price bars as indicators, just
as many people use candlesticks as indicators. The bar interval is irrelevant. What
matters is the movement of price. Any bar interval beyond a tick is a summary.
What sense is there is in waiting for, say, a 5m bar to "close", much less 10 or 15 or
30? Are professional traders 'round the world waiting to act according to what price
does in five minutes, or are they acting on what price is doing right now?

I look at daily and weekly charts and go with the trend, but in fx and futures where
my trades can last from 30 mins to a few days, that's where i have a problem. For
example, sometimes if the 15 min chart shows reversal, to go with daily chart trend,
I find that the 60 min (or 240 min) are contradicting.

Anyway the problem I have is not restricted to indicators alone but technical analysis
as a whole.

Whether one timeframe "contradicts" another or not has less to do with price action
and more with the choices one makes in displaying it. Consider that there are no
contradictions among TFs, that price simply moves from one area to another. If you
trade, for example, support and resistance, then questions of "trend" become largely

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irrelevant. If you attempt to trade trend without regard to support and resistance,
then focus on your chosen interval and ignore everything else.

How do you manage the risk of entry lower down without a very large stop, or is that
me being daft? I would if I entered lower down find it hard to say I am wrong until
the area of rejection falls, ie Hard STOP over R. Even then, another rejection very
possible.

Most often, this question translates not as "how do you manage the risk" but as "how
do you manage the fear". But in both cases, the answer is the same: you have to
know what you're looking for and you have to know what you're looking at. The
trader who doesn't know what he's looking for or what he's looking at is going to be
crippled with fear, doubt, and anxiety, and he will eventually fail.

The dynamics of real-time charts are generally missed by those who use static
charts, much less hindsight charts. This is one reason why people dismiss hindsight
charts: they don't know what they're looking at. Here, for example, is a repeat of the
1m chart I posted earlier:

There seems to be nothing particularly remarkable about the circled bars. However,
when one plots this using a 1s interval (again using the chart I posted earlier), the
circled bar appears to be considerably more urgent:

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But to go through an entire day like this would take a great many charts, and the
point of it would be quickly lost through sensory overload. Therefore, anyone who
has no experience with dynamic real-time charts, i.e., charts that move, but
concentrates instead on static "snapshot" charts will likely not be "ready" to
understand what's happening in the charts posted here.

This is the same as the 1m chart above with a few additional bars after the
breakdown. The springboard is circled:

Note how the springboard looks on a 5m chart:

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Note that on a 10m chart, it does not appear at all, even though it's still "there":

Now, how do I manage the fear?

Here is a 5s chart of the open. Note that price plunges to 1862, but there's no
follow-through. There is then a rally. Does this frighten me? No, (1) because my stop
is above all this and (2) volume dissipates as price rises. Price then resumes its
decline and levels off around 57/58 at around 0942. If one looks at 50 as an
important level that's likely to be tested, this leveling constitutes another
springboard, i.e., a preparation for a further decline. This decline occurs and price
hits 50, or close to. Price rallies back to the springboard level at 57/58, but then
volume dries up. There's no follow-through. Instead, it falls back to 50. It hammers
away at 50 again and again, rallying to 54 three times but never breaking through.
How do I know it's going to break through 50? Because of the volume, which is
heavier on the downside and evaporates on the upside. Can one see this in a static
chart? Only generally, and perhaps not even then. In a real-time moving chart,
however, what's happening with volume and its relationship to price is very clear.

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Of course, not everyone can look at RT charts. They can only pop in every few hours.
If they're going to take this trade at all, they may have to resort to some line
crossing some other line or some bar touching or recoiling off some band or other.
But they're not going to take the trade because they understand what traders are
doing. They're going to take it because some line is crossing some other line or
whatever. And for this reason, they will never truly conquer their fear.

And what if it all goes wrong? What if selling suddenly dries up and buyers push price
back through the springboard and out the other side? I'll see and understand what's
happening by monitoring the volume (cause) and its effect on price. I'll be out by 52
+/- and ready to go long at 55 +/-. If buyers lose their juice and the springboard
becomes instead an equilibrium level, then I exit and stand aside, waiting to see who
gains the upper hand.

The spider does not need to "feed" everyday. He is content to wait until a
morsel comes his way, patient and secure in the knowledge that he has taken
the steps necessary for his survival. His carefully crafted web transmits to him
all sorts of information. But he knows how to identify the false signals ~ the
wind vibrating his web, a drop of rain ~ from the real thing enmeshed in it.

Why does he know it so intimately? Because he has carefully constructed his


web himself. No one else can build it for him. As a result, the configuration of
his web is as uniquely his as his fingerprints. Most important, the spider is
patient. He waits until he sees a convergence of most all of his signals before
he acts; but when he does, he pounces aggressively and without hesitation.

For further information on my book, contact me @ trade2win.com or traderslaboratory.com.

DbPhoenix

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