price and volume analyst

8/20/2019 Price and volume analyst

1/21

This chart is a good example of the importance of remaining bias-free. Given the parabolic

rise through resistance all the way to 1900, a bias toward the short side would seem to be a

duh. nd the first level of support appeared to be 1!!0. "owever, if one loo#s bac# at tune$s

chart, he can see the congestion area between 1!!0 and 1!90 on the %th and &th, the

midpoint of which was 1!!'. (ven if he focused on the low to the high on the &th, he$d still

end up with a midpoint at 1!!'. Therefore, dropping below 1!90 does not necessarily mean

that the long game is over.

)ote here that when volume comes in at 09%!, price is pulled down. *ut even though price

continues its slide, volume brea#s off dramatically, then wor#s its way higher until 09'+. ll

this appears to favor the short side. *ut loo# at effort and result. s volume rises, the bars get

shorter, and when volume pea#s at 09'+, price closes well off the low, and buyers are able to

push price higher in the next bar with much less effort hence the lower volume. Therefore,

throughout this downmove, buyers are coming into the mar#et, supporting the price, and

even pushing price higher.

olume then dries up considerably during the upswing after moving price to 1!9+. The big

volume comes at 1000 and pulls price down almost to 1!!/. This appears, again, to support

the short side, particularly since sellers are able to move price with little resistance from

buyers low volume, except for 1000.

*uyers and sellers then go bac# and forth, and volume does pic# up during this exchange.

"owever, the biggest volume is unable to pull price lower, and the end result is a draw. This is

not good for the short side. t 100!, buyers are then able to push price higher with very little

effort again, low volume suggesting that selling pressure is much less than it had been.

2uring the next segment, buyers are able to #eep sellers at bay with relatively little effort

again, low volume. )ext, buyers are able to push price all the way bac# above 1!91, and

though the volume is higher, suggesting that they had to wor# a little harder, it is not unusually

high.

2uring the last segment, price drifts bac# a bit, but volume practically disappears, suggesting

that sellers are done, and it$s up to the buyers note how easily buyers push price higher at

1019.


2/21

This is only about bars, however, if one can$t see them move. 3f one watches them move in

real time or via replay, he can detect the waves easily. )ote here how price dips into each

trough, then rises bac# out of it, crests, then repeats the cycle again and again, gathering

strength along the way. 3f sellers had the upper hand, price would not repeatedly recover in

this way.

3t should be self-explanatory. The green dots represent most if not all the available entry

points, selection of which depends on the s#ill, talent, and ris#-tolerance of the individual

trader.


3/21

The pin# dot is also a stop, tight because the entry is so late.

How are we to know in advance why and to what extent someone else is prompted to buy orsell? We cannot know; it is impossible for us to foretell what actuates all of those whoseorders are poured into the vast intake of the Stock Exchange machinery during the day'ssession

!ut if we study the action of prices; the responses; the speed of the ticker" indicating urgency

or the contrary; the intensity of the buying or selling" as indicated by the volumes; and theintervals when the volume is heavy or light ## all these in relation to each other ## then we gaininsight or the design and the purposes of those who are dominant in the market situation forthe time being

$ll the varying phases of stock market techni%ue may thus be studied and interpreted fromthe buying and selling waves as they appear on the tape &rom these we form a conclusionas to the balance of the probabilities n this we base our commitments

(ichard Wyckoff

4irst, an overview of yesterday$s move and what had been the various potential support

levels5


4/21

The when and where and how to short has been addressed. 6hat is presented here

addresses what is re7uired as a prelude to today$s trading.

8nce one has ta#en the short, there$s no need to do anything else other than wait for a test of

support, unless of course the short is stopped out, but, again, that is not the subect here.

olume can be ignored because without any sort of test, it$s irrelevant as *earbull explained

so well earlier. 8nce the first counter-wave has completed itself, a supply line can be

drawn5

6hen price resumes its decline, volume rises on the downmoves, but even when the first

level of potential support is reached, the volume doesn$t even approach climactic. 3n the

meantime, the supply line can be extended5

:rice eventually brea#s the supply line, but there$s nothing remar#able about the volume, and

price doesn$t come anywhere near approaching the previous swing high, much less brea#ing

it5


5/21

:rice then resumes its decline and volume becomes climactic. "owever, even though pricebrea#s the newly-extended supply line, it does not brea# the previous swing high. )or is price

anywhere near the next potential support level of 19&0. ll of this constitutes continued

wea#ness.

:rice continues its decline and volume is again climactic. (ven more so. *ut, again, price

doesn$t even come near the supply line, much less the previous swing point5


6/21

:rice now reaches the next potential support level at 19&0. ;ince the angle of decline is

greater, an additional, more form-fitting supply line is drawn. olume is again climactic and

the test is on lighter volume, a seeming classic buy signal given that all of this is ta#ing

place at potential support.

"owever, even though price brea#s this new supply line, it breaches the previous, minor

swing high by only a couple of tic#s, and there$s no bullish push. The experienced 6yc#off

trader ta#es note of all of this and exits his long, if he had ta#en it at all.

)ow we approach the next potential support level, the midpoint of the upmove on the 1st, and

the trader begins paying attention to volume again.

"ere the angle of decline increases again and a new supply line is drawn the experienced

trader #nows that as these angles become more acute, the probability of their being bro#en

increases, but even though volume becomes increasingly climactic, price doesn$t brea# the

supply line, much less reach the previous swing high. new element is a general increase in

volume throughout.


7/21

6e now get to the next level of potential support, and volume is again climactic. *ut even

though price brea#s the newest supply line, it does not reach the previous swing high, nor

does it brea# the prior supply line. The effort becomes a new -- though not higher -- swing

high and the previous supply line is extended. :rice continues its decline.

)ow to the next level of potential support, and we$re running out of time. :rice hits 19'0,

again on climactic volume, brea#s the supply line and breaches the previous swing high.

This attempt fails, but, this time, price ma#es a higher low, tries again, and holds above the

previous swing high.

6hether a trader goes long at the test of 19'0, at the brea# of the supply line, at the breach of

the previous swing high, at the higher low, at the second breach of the previous swing high, or

anywhere else inbetween is not 6yc#off$s problem. 3t$s up to the trader to decide based on his

sensitivity to and analysis of mar#et forces, on his ris# tolerance, and on his s#ill.

3n any case, this is how we begin today which 3$ll get to later.

s one might expect after a trend day, particularly one worth so many points and which

represented a substantial failure on the part of bulls, Thursday would not be and was not

about drama.

*ut assuming that one had no bias toward the day, he would note first that the mar#et was


8/21

going to open the red vertical bar at or about the midpoint of the 'ather it ust sits there, for an hour and a half, on moderately high but unremar#able

and relatively featureless volume. Therefore, unless the trader wants to manufacture a trade,

there=s really nothing to do unless and until support is tested on the one hand, or the nearest

resistance at the midpoint of the previous day=s downmove 19&! is tested on the other.

The trader, after all, must remember that the proper entry here was at or near 19'0 the

previous day. 6hether he too# the entry or not is irrelevant. The mar#et doesn=t care whether

he too# it or not. 3t only #nows where he should have ta#en it. 3f he didn=t ta#e it, he has to

#eep in mind that any other entry is second-best, if not third or worse. 3f he has a strategy for

pyramiding, this may be the time to implement it. 3f he doesn=t, his choices are limited5 wait

and gauge the relative strengths of the bulls and bears or go ahead and buy with a very wide

stop.

6hether or not one buys the higher low that occurs between 10%' and 1100, one can now

draw a demand line underneath that low, beginning with the previous day=s low. )ote that this

is a demand line, not a trend line. 3t trac#s those levels at which demand enters the mar#et

and stops or turns price. Therefore, whether 1& hours= worth of time bars are included or not

is irrelevant. 8ne can use :?4 or, as here, he can use @*s. ;ince only two ApointsB are

needed, the line can be extended toward the (82.


9/21

8nce this line is plotted, it can be copied and another, parallel line placed at what has so far

been the swing high. This is also extended toward the (82 so that the trader can monitor the

behavior of price if and when it approaches this line.

;hortly after 1100, price does approach, then push through, this line, becoming AoverboughtB

by virtue of having pushed through the line. few minutes later, it pushes further to the

midpoint of 6ednesday=s downmove. 3f the trader were long, should he exit hereC ;hould he

go shortC That depends on the trader. *ut this is where the bears gain the upper hand and

turn price bac#, not out of the blue, but at the confluence of these two important levels

compare the time chart to the @* chart.

Thereafter, price reverses at 19//, though there=s no way of #nowing that it will, and volume

does not provide a clue until price hits this level a second time, after lunch. 6hether one

closes his short and goes long here depends on how confident he is that support is to be

found in this area. *ut the point of this is not to find trading opportunities per se it is rather to

gauge the relative strength of bulls and bears. ;o far, the bulls are in control as shown by the

higher lows.

:rice thereafter ma#es a higher high, again AoverboughtB, followed by a higher low. 3f one isgoing to trade this, volume does provide clues at turning points, but a central and perhaps


10/21

more important concern is ust how far bulls can push price. 3f it cannot reach the previous

day=s midpoint, this suggests wea#ness. 8n the other hand, if it can get past the midpoint, this

suggests strength, either of which carries implications for the following day=s trading. This

second higher high at 1%00 does push past the midpoint, suggesting strength. nd it appears

to ma#e a higher low a half hour later.

"owever, price now drops below the demand line and is unable to push bac# through it for

more than a couple of points for more than a few minutes. This represents a change in the

dynamic between bulls and bears which, again, is the point of plotting these lines and

monitoring the relationship of price to them and to the support represented by the previous

day=s low and the resistance represented by the midpoint of the previous day=s downmove.

gain, one can trade this and, yes, one can ma#e money with it. *ut, according to 6yc#off,

the li#elihood of doing so is enhanced by being sensitive to this push and pull between

demand and supply and being able to place all of it in the right context. 8therwise, one is

more li#ely to be ma#ing random trades, i.e., gambling.

"ere, again, the supply line is drawn first, then a parallel line is plotted underneath to trac#

demand.

1. The purpose behind drawing these lines is not to ma#e the chart loo# pretty but to draw the

trader$s attention to those areas, Dones, points, levels, whatever where price action is most

li#ely to provide trading opportunities. 6hether one draws lines, boxes, circles, arrows, or big,

pointy fingers is irrelevant.

+. 8nce those areas, Dones, points, etc are identified, volume becomes largely a non-event,

i.e., one pays attention to it only at those areas, etc where it is most li#ely to mean

something. That this point is so often overloo#ed is probably why so many people thin#

volume is useless.

4or example, using the 1m time bar chart 3 posted earlier, 3$ve blown up the shaded area5


11/21

Entil price reaches an area where a trading opportunity is most li#ely to occur, there$s no

reason to obsess over the minor ebbs and flows in volume. "owever, once trading

opportunities are on the horiDon, what might be considered directionless activity elsewhere

suddenly becomes important.

"ere, for example, when price comes bac# to 19// the second time, the fact of the test isinteresting enough. That it cannot ma#e a lower low even with all the volume is even more

interesting. The bullish boost at 1F+9-F0 becomes more important because of what has come

before, as does the volume recession when price pulls bac# to 19&'. 6hen another bullish

boost occurs, beginning at 1F'+, it is significant, again, because of what has come before.

nd when price ma#es an attempt at a higher high at 1%01 and volume isn$t there, that again

becomes significant because of what has become before and provides the classic double-

top price-volume divergence setup for the short. Without the context, none of this matters,

and volume is little more than traders going about their business. 6ith the context, it becomes

a high-probability short trade.


12/21

6yc#off stresses that, in addition to trend and whatever channels may be formed by apparentconsistency in the intrusion of demand and supply, one must also loo# to previous areas ofsupport and resistance, which is what we$re doing now. esterday there was an upthrust inthe )asda7 and the 2ow. There was also an upthrust of sorts in the ;:H, but there$ve been

so many over the past few wee#s that they are forming their own base .

6hatever these thrusts mean in and of themselves does not matter as much as where theyare occurring, i.e., against important, previous support. Therefore, both intraday and (82traders would do well to concentrate on how price behaves at this particular uncture.

Trading ranges

The story is not ust in the trading ranges nor in ust the trend or -- if it forms -- the trend

channel. The trading ranges, or : clusters, tell you where traders are finding trades and

where the extremes of each of these Dones are. The trend, or stride, tells you how strong or

wea# the overall movement is and also warns you of potential changes in strenghth or

wea#ness, i.e., changes in momentum.

"ere, for example, price struggles to move higher with regard to vertical movement, but it$salso hugging the trend


13/21

two charts, one the usual, and another following which shows the maor : congestion Dones

within the micro. 3f that ma#es any sense.

Those of you who$ve been following along #now that the midpoint of a move was important to

6. @learly there are good reasons why.

nd the three longer-term 1+ days I Dones5

The (; has two5


14/21

ou can than# auction mar#et theory. *ut 3 find these easier to read and understand thanJar#et :rofile charts, especially when 3$m loo#ing at interactions across time.

3 read somewhere recently -- and can$t remember where -- having to do with Jar#et :rofile, 3believe -- that most experienced traders will avoid trying to catch the tops and bottoms andfocus on the middle, waiting for confirmations to enter and confirmations to exit. "owever,

since the middle is by definition where most of the trading is going on and is largely non-directional, there is also a lot of whipsawing in the middle, and that generates a lot of losingtrades. 8ne can sometimes avoid this by widening the stops, but, since the mar#et alwaysteaches us to do what will lose the most money, this will turn out to be an unproductive tactic.

The safest and generally most profitable trades are found at the extremes. Therefore, youwait for the extremes. 6yc#off used a combination of events to tell him when a wave wasreaching its natural crest or trough5 the selling


15/21

generally sideways direction, you=ve found AvalueB if value hasn=t been found, then pricewon=t stop advancing or declining until it has. alue, then, becomes that area where most ofthe trades have been or are ta#ing place, where most traders agree on price. :rice shifts froma state of trending to a state of balancing or consolidation or ranging, the only two statesavailable to it.

The trading opportunities come a when price is away from value and b when price decidesto shed its s#in and move on to some other value level that is, there=s a change in demand.This is also where it gets tric#y, partly because demand is ever-changing, partly becauseyou=ve got multiple levels of support and resistance to deal with and partly because we tradein so many different intervals, from monthly to one-tic#. 3f we all used daily charts exclusively,it would all be much simpler, though not necessarily easier. *ut that=s not the case, so wemust remember always that a trend in one interval L say hourly L may be a consolidation inanother, such as daily. The hourly may be balancing, but there are trends galore in the 'mchart. 8r the 's chart. 8r the tic# chart. >egardless of how one chooses to display theseintervals L line, bar, dot, candle, histogram, etc L there are multiple trends and consolidationsgoing on simultaneously in all possible intervals, even if they=re in the same timeframe, even if that timeframe is only one day to describe this ebb and flow, 6yc#off used an oceananalogy5 currents, waves, eddies, flows, tides.

To sum up where we are so far, and #eeping in mind that there is no universally-agreed-uponauction mar#et theory, the following elements are, to me, basic, and are consistent with what3$ve learned from 6yc#off et al51 n auction mar#et$s structure is continuously evolving, being revalued future price levelsare not predictable

+ n auction mar#et is in one of two conditions5 balancing or trending.

F Traders see# value value is price over time price is arrived at by negotiation betweenbuyers and sellers.

% @hange in demand drives change in price.

' 8ne can expect to find support where the most substantial buying has occurred in the pastand resistance where the most substantial selling has occurred.

)ow let=s translate all of this into a chart.

3$m sure everyone has noticed that swing highs and lows and the previous days= highs andlows and other


16/21

round trip to the bottom of the range. 3t lingered a bit in the middle, simultaneously creating

that protrusion in the center of the volume pattern. *ut volume at each end is thinner than in

A*B, thinnest at the bottom due to the M< shape, giving the volume L if one is fanciful L

something of a : shape.

3f price drops through one of these Dones, those who bought within that Done are going to be

miffed. ;ome of these people are going to try to sell if and when price re-approaches that

Done. This is the basis of resistance. There$s ust too much old trading activity to wor# through

in order for price to progress unless there is enough buying pressure to ta#e care of all those

people who want to sell what they have, then push price even higher in which case those

who sold may thin# they screwed up yet again and buy bac# what they ust sold. "owever,

those who bought or sold at the outer reaches of these Dones will also be disappointed if they

can$t find buyers for whatever it is they ust bought, not because there$s too much volume but

because there isn$t enough.

;o how does one trade all thisC 4irst, you will have to monitor several intervals at the same

time in order to a find out what interval you want to trade and b where price is within

whatever range or ranges is


17/21

t this point, you have three options5 a reversal, a brea#out, or a retracement. 3f, for example,

price bounces off or launches itself off the bottom of the range support, trade the reversal

and go long. 3f instead it falls through support, short the brea#out or brea#down, if you

prefer. 3f you don=t catch the brea#out, or you prefer to wait in order to determine whether or

not the brea#out was ArealB, prepare yourself to short whatever retracement there may be to

what had been support and may now be resistance.

more boring alternative is that price is nowhere near the top or bottom of any range that you

can find but rather drifting up and down, aimlessly. )o change is occurring therefore, there is

no trade, or at least no compelling trade. 4inding the midpoint of the range may be useful

since price sometimes ricochets off the midpoint, or launches itself off the midpoint if it has

settled there. ;uch actions represent change since price may be loo#ing for a different value

level. 3t may come to a screeching halt and reverse when it gets to one side or the other of the

range and return to the midpoint, or it may launch itself through in brea#out form and extend

itself into the next range, if there is one, or create a new range above or below the previous

range in determining which, bac# off into larger intervals in order to determine whether or not

price is in a range in one of those larger intervals.

This isn=t all there is to it, of course, but there are more charts posted in this thread than in

any other, and 3 hope that enough information and examples are provided in these posts to

enable you to develop a consistently profitable strategy based on these principles.

)o. @ounting bars doesn$t ma#e much sense since they$re entirely dependent on the bar

interval you choose. 6hen price stops moving up, or down, and retraces, 3 then wait to see if

it$s going to continue or bounce bac# and forth. 3f the latter, that becomes a congestion or a

trading range if it$s tradeable. That earns a box.

re: The Nature of Support and Resistance

That$s the drill, as 3 mentioned in the longer post above and in more detail in the 2ailies. Thegeneral idea is to find ;?> then trade the extremes, selling > and buying ;. The worst chopis most li#ely to be found at the midpoint, which in this case is 1%1' and it loo#s li#e we$regoing to open right there.

8T8", moves do originate from the midpoint, and the midpoint sometimes acts unexpectedlyas ; or >. ;eeing this can be frustrating. *ut if one reviews several doDen charts or more,the probabilities for good entries with tight stops are most often found at the extremes.

)ote5 3 should also point out that we$ll be opening ust above the midpoint of that long upmove

from '


18/21

Where We Are So Far: ll of this hindsight chatter about oil serves as an example of the

6yc#off way of trading, that is, a different #ind of thin#ing that focuses on price movementas a result of imbalances between buying pressure and selling pressure, particularly against

levels or Dones of support and resistance, all of which is in turn a manifestation of trader

behavior. Enderstand the behavior and you understand the illustration, whether on a chart or

on the tape or on or in some other form. Enderstand the behavior and its illustration and you

are set up to profit from it one can also profit from this via indicators, chart patterns, event

trading, and so on, but none of this is pertinent to the 6yc#off approach.

:articipants have demonstrated this #ind of thin#ing in their analyses of the price movement

as it wends its way up and down through a continuing series of crests and troughs. These

waves are a language, narrating the behavior of buyers and sellers. nd whether participants$

every opinion has been correct or not, they have wor#ed toward understanding the story that$s

being told by price movement and its accompanying volume transactions and towardgauging and interpreting the continuous changes in buying and selling pressures with the


19/21

intent of finding the line of least resistance.

*y doing so, 3 hope that they have demonstrated that everything one needs to #now in order

to ma#e a trading decision is in the price movement, again whether illustrated by chart or

tape. 6hile there are undoubtedly many traders -- retail and professional -- left holding the

bag at tops and bottoms, the 6yc#off trader will not be one of them. "e does not allow

himself to be distracted by extraneous information of whatever sort. :rice behaves a certain

way that is, traders telegraph their intentions by their transactions, and he$s out or in, as the

case may be. "e can wait for moving averages to cross each other or for some other indicator

or news or a particular #ind of bar or candle or pattern to signal or confirm an action, but he

doesn$t need to, except for personal reasons. )one of this is therefore part of the approach.

This has the effect of #eeping everything very simple and relatively easy to understand 34 one

can focus on the approach at its most elemental until he thoroughly understands it. t that

point, he can play with it as much as he li#es, if he chooses to do so. *ut while those

modifications may alter the approach as he implements it, they do not alter the nature of

the original .

3n order to save flipping bac# and forth, the following chart was posted at the beginning in

order to provide the macro view. 3t$s a typical and ordinary bar chart.

*ut the waves of buying and selling can be illustrated 7uite clearly without bars. 3n fact, for

many 6yc#off traders, they are easier to see with a line.

The tests are the same, the trend is the same, the signals that the trend is over are the same

see, for example, the inset. chief difference, however, is that one needn$t get entangled in

7uandaries over what individual bars mean if anything. 8ne can in fact convert trading

activity or volume into a line, depending on his software. ;ome 6yc#off traders find it even

easier to detect the pulse of the mar#et in this way.

s for argon, nothing special5 climaxes, technical rallies, reactions, springboards -- that$s

about it. The goal is clarity and simplicity, not obfuscation and complexity.

http://www.traderslaboratory.com/forums/f131/introduction-3877.htmlhttp://www.traderslaboratory.com/forums/f131/introduction-3877.html


20/21

s 3$ve said elsewhere, price doesn$t care about you or about how you care to view it or

illustrate it. 3t exists independently of your charts and your indicators and your bars. 3t couldn$t

care less if you use candles or bars or plot this or that line or select a 'm bar interval or ! or

+F or wee#ly or monthly or even use charts at all.

Therefore, trading by price, or at least doing it well, re7uires getting past all that and

perceiving price movement and the balance between buying pressure and selling pressure

independently of the medium used to manifest or illlustrate or reveal the activity. 4or most

people, this re7uires a perceptual and conceptual shift. ;ome find this shift relatively easy to

ma#e. 8thers find it impossibly difficult. 3f you fall into the latter category, #eep in mind that

there are many ways of ma#ing money in the mar#et. This particular approach is only one of

them.

No one is asking you to go long, Susana, nor is anyone suggesting that you short. You

said that there was no buying interest. Clearly there is or volume would not be so high.

It is also clear that selling pressure is greater than buying pressure or else price would

not be falling.

And while for every buyer there may be a seller assuming a completed transaction!,

buying pressure is not always e"ual to selling pressure. If it were, price would never

move. #nce you understand that, volume will no longer be $unreadable$.

Always remember this: An increase or decrease in volume is significant. Gradual

or sudden increases or shrinkage will assist you in detecting turning points;determining the trend; when to open or close a trade; when to change your

stops; when a move may be culminating or about to culminate.


21/21

They are used merely to emphasize the principle that it is the relativechange in the volume of trading, rather than the mere magnitude of thedaily turnover, that is significant.

price and volume analyst

Documents