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You kind of answered your own questions Tom Williams has passed away but was one of the guys who took Wyckoff principles to the next level with a more modern interpretation. The book I mentioned goes through it much more eloquently and in much greater detail but...
Price movement on large volume is legitimate buying or selling by active participants. Price movement on very little volume is lack of liquidity; i.e. price rises or falls because of relative lack of buyers/sellers in those ranges. And huge volume with very little bar spread would indicate a lot of activity that is balanced between buyers and sellers. An imbalance in supply or demand is what causes price to move.
Trevor's "Wyckoff Speculator" thread that @sudhirc mentioned is a really good read.
Check out Adam Grimes trading class https://www.marketlifetrading.com/ (I'm not affiliated but I found it to be a great free class). I've used the Keltner channel (20SMA, with 2.25SD bands) and the MACD (3,10,16) to look at momentum divergence & reversals & pull backs. I find them to be a simple and effective way to frame the market but it took a lot of time to figure that out. you need to spend a lot of time with your chosen indicators and prove to yourself that you have an edge using them .
Can you say how you specifically use volume then? Are you just using volume at the bottom of your chart? If it's proprietary I understand as I have my secrets myself.
And what's the difference between legitimate buying on large volume as you call it and lack of liquidity?
As long as I get filled, I don't care if it's 'legitimate' or not as long as it moves.
As I'm fairly blank on volume, it seems like the ES has been rather low volume today, but still there have been nice moves today including a very nice move this afternoon.
Delta, which I mentioned, might be better in that it does point out this imbalance between buyers/sellers, BUT, I'm also uncertain about what I can read from it considering how thick ES is.
There are traders worthy of respect who have spoken well of the MACD. I'm thinking that both settings and what you aply the MACD to (minute or even volume charts) might be crucial. It's also possible that settings need to be adjusted for volatility.
I'm late getting to this thread. I think many of the responses are good ones, but the main thing I would say is that indicators, on their own, don't mean much -- nor does anything else, really, on its own.
Take MACD, which you mentioned. It's a fine way to see what price has been doing (so is just looking at the chart), but to use it profitably you will need to develop an idea of what that movement "means," which is the hard part. There's the overall context of the chart -- trend or range, tight range or wide one, range that's being broken out of, or trend that is slowing and/or changing. There's support and resistance, where the buyers and sellers have been and might come in again. There's the perpetual question of what does the volume mean in terms of the buying/selling power behind a move. And so on, and on.
Long story short (well, I never can just be short; let's say "shorter" ): all indicators can be useful, and also all of them can be useless, depending on your idea of the context at the time. Using one or more for signals gets people in deep trouble, because an indication that "price is going up now" (or whatever) will work or not only if everything else is also aligned, and much of that is just going to be your hypothesis about what is going on, not something shown by an indicator (or "price action" or volume or this or that or any other one thing.)
This is not really a great response to your question, since you want to know if any indicators will work, and I just said, basically, yes and no.
I mean to say that if you have an integrated view of what the market is doing at any time, based on an understanding you have, then an indicator can fit into that view and give you a valuable (I hate to use the word, but it fits) "signal" that something is going the way you thought, or is not.
So how do you develop a view of "what the market is doing?" Easier said than done, obviously, but I think that it is more important than which indicator you use, if any, because it is what makes them useful or not.
There are lots of things that can work; price action works (trends, s/r, ranges, all that stuff ); volume profile works (for those who can understand it); volume/price relationships work (also for those who understand it); I have seen people who can read the DOM (depth of market) and can actually use all that; and more and more yet....
Once you've settled on a basic approach, you might put some indicators to use. But you need the approach, the concept of what is basically going on, before any indicators, or any other techniques, will help much.
Sorry to be both vague and long, but I think this is the best way I know of to look at the question: context first, everything else later. And context is, of course, always your hypothesis of what is happening, which needs to be confirmed or denied by the market, and which can always be wrong in any particular case, no matter how fundamentally sound the basic ideas you are using are.
I've been meaning to look more into cumulative delta on volume, just haven't gotten around to it yet... all I currently use is volume at the bottom of my chart (you can see them over at my journal.)
Volume spread analysis (VSA) is the primary method I use, basically you compare the amount of volume versus the high, low, close and spread of the price bar. You also compare bars with the ones that came before it and others that are similar in volume. A wealth of information can be interpreted by doing this. Nothing secret about it; all of this is covered in-depth in the link I posted earlier. I'm not nearly at the level of some of the true masters of it around here, it has been a learning process for sure, but it has taken me to the point where I am fairly consistent on a daily basis.
Here's an example:
Let's use bar 1 as our baseline, and a good example of legitimate buying. Compare 1 and 2; volumes are fairly close to each other, but bar 2 has about half of the spread of 1. What would cause this? Sellers are coming into the market on bar 2. If bar 2 was all buying, it would have made much further progress up, like bar 1.
So then what to make of bar 3? A nice big spread and downward movement on rather low volume; this is lack of liquidity, not many buyers present so price moves down with ease because there is no demand (it was cleared out on the previous two bars, which had similar volume as 3 but look how narrow the spreads are compared to it.)
Compare bar 3 to bar 4. Bar 4 has probably 3x the volume, but the spread is less than bar 3! How is this possible? Demand is coming in at this level, buyers are countering downward movement.
How about 1 vs 3?
If we can determine where sellers and buyers are present/coming into the market, it can provide opportunities to ride the wave of the bigger players' moves.
Hope this helps!
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Very good, in-depth answer @bobwest. Of course we would expect no less
Here's ES yesterday. How about the bottom at around 19:30. I had an expectation of a bottom around this area and a gap close by end of day (which happened) based on my (statistical) methodology.
Do you think that there's information in this volume pattern that can help time/predict a bottom here?
What I'm doing now is seeing if I can improve my charting skills to supplement my trading signals that's not generated by charts.
I want something that's not subjective and which give me precise signals.
I do already have a methodology which is not based on charts, so charts are merely the icing on the cake for me. I'm basically using chart reading to supplement and confirm my signals. But 'chart reading' might be subjective, hence why I might be interested in an indicator which could introduce some objectivity.
PS: Appreciate all links, guys, but it seems like as a Non-Elite Member, I'm not able to view most of them. Maybe I'll just have to become Elite eventually, but I just cashed out on a lot of other trading stuff including a live license on NT, so it will have to wait a bit.
Something as simple as a MA crossover would be an example of an indicator that's not discretionary. You get a signal when the fast MA crosses the slow MA.
Now, I'm not suggesting this as a final solution of course. Just an example...
The last time I traded my method was also discretionary and highly subjective. As I've developed a new methodology and prepared for live trading I've done my best to reduce discretion.
That's where I can see an indicator being useful. And it would have to be reliable or at least give high probability signals (better than 50/50).
Tom Williams has passed away but was one of the guys who took Wyckoff principles to the next level with a more modern interpretation. The book I mentioned goes through it much more eloquently and in much greater detail but...
): all indicators can be useful, and also all of them can be useless, depending on your idea of the context at the time. Using one or more for signals gets people in deep trouble, because an indication that "price is going up now" (or whatever) will work or not only if everything else is also aligned, and much of that is just going to be your hypothesis about what is going on, not something shown by an indicator (or "
