My Trading Log

Trading Discussion Trade Journals
168
  • Let’s discuss a little bit about volume in forex, shall we my dear Watson?
  • Certainly Dr Holmes.

Is it at all possible to get reliable volume information for me, the retail trader? Why yes, of course. I can buy access to FX futures volume numbers if my trading account allows such expenses.
Or I could buy access to a service like esignal which claims to add up volume from 300 banks world wide to provide reliable volume info.

But let’s look at what we can get for free, in any MT4 brokers feed. There’s an indicator called simply: volume. But what does it do? So many will tell us that it’s completely useless. Is it so then?
Well, it’s true that it doesn’t give us actual traded volume in millions of dollars. What it does do, is that it adds up the ticks in every bar. The logic behind this is that every transaction creates a tick. So it measures in fact the number of transactions, but not the size of these.
So MT4 volume could show for instance 100. That means that the broker feed was updated 100 times during that particular candle. It doesn’t say however what the added size of those 100 transactions were. Maybe it was 100 x 2M, maybe it was 100 x 0.5M, or maybe it was 99 x 1M + 1 x 250M - we don’t know.
True volume could therefore be 200M, 50M or 349M all with the same MT4 volume of 100.

So, it would be fairer to call it something like “Activity” or “Price Updates” or “Transactions” or something like that. Volume is a bit misleading.

So, is it then useless?

No, I don’t think so. Because one can assume that measuring volume gives you largely the same information that you get from measuring activity. High volume is taken to mean large activity in the market, giving added strength to any signal.
In that sense, I believe that MT4 volume actually does what it claims fairly well. Of course only so if the broker gets the volume figures from the interbank network, and not from it’s own customers. The large brokers seem to be pretty, not 100%, but pretty consistent with each other. Several of them claim to get their “volume” feeds from the interbank network, so that condition is probably met.

I have seen posters on other forums say that esignal and the big fx brokers are in fact very similar on volume.

This leads me to the conclusion that the volume indicator in MT4 can be used, but one should understand what it does and what it does not do.

  • All right my dear Watson, are we any wiser?
  • As always you’re a genius Dr Holmes.
  • You’re too kind, but thank you. Now it’s tea time.
  • It certainly is. And biscuit time. Don’t forget the biscuit.
169

I’m now going to spend some time reading Tom Williams book, The Undeclared Secrets That Drive the Stock Market.

There’s a newer version also, called Master the Markets, but I’ve read that the original is better so I’ll read that first.

This book should deal with volume and trading. Looking just at price and time I feel that something is missing. That thing I believe to be volume.

The concept of VSA (Volume Spread Analysis) seems very promising and natural to me. I hope this is my way forward to a method of trading that suits me.

More posts will follow in time.

170

Thank you for sharing your ups and downs and thinking process. Sometimes you really express what I am feeling. Amazing, we are a world apart on this planet and yet we
have something in common. I just appreciate your work. Thank you again.

Dollie

171

That’s one of the many beauties of the internet. None of this interaction with people I’ll never meet eye to eye, from countries all over the globe would have been possible 15-20 years ago.

I’m glad this thread can be of use to someone other than just myself.

172

I just thought I’d share the book I’m reading right now.

It can be electronically downloaded for free through this link: Download TOM Williams THE UNDECLARED SECRETS THAT DRIVE THE STOCK MARKET.pdf from rapidshare.com - Filestube.com - download everything

I’m uncertain as to whether it’s legal or not, that’s for everyone to decide on their own.
I do not want to promote copyright infringement, but the pdf is openly accessible on this site so I interpret that as meaning it must be OK.

Anyway, I’ve only just gotten started, but this book seems very promising. It just gives me that feeling of rightness. It makes sense to me. (I almost wrote “it talks to me”, but that would have allowed for questioning of my mental state…;))
I’ve had just as bad a case of system jumping as any of those 90-95% that end up losers. Bringing volume into play has finally given me a feeling that everything is falling into place. I hope that feeling lasts also after I’ve finished reading the book.
Full review to follow when I’m done. That might take a while, lot’s other stuff to do as well.

173

eurusd 20090515 1455 gmt

Below is a example of how volume + a resistance line can be used profitably. This occurred a little while ago:
(sorry about the resolution - will work on that for future posts)

By combining the 1.36 resistance level with the increasing volume candle with the long upper wick (touching the upper Bollinger band) we have a high probability trade with a small SL to be set just above the wick + spread.

As we can see from the following bars, this would have indeed been a successful trade. The reversal was confirmed by the increasing volume and the decreasing spread of the candle. Market makers and other pros were more than happy to sell to anyone (read you and me - retail morons) who wanted to buy at this point. Pro’s now expected price to reverse which is why they didn’t mark it up but instead were happy to sell to anyone who would buy.

Guess what? Pro’s were right and if we are able to use Volume Spread Analysis in this manner, we can see their behaviour and copy their moves.

Just a example I happened to see just now. Back to Tom Williams.

174

eurusd 20090515 1540 gmt

Another example. 10min chart. Same principle: Reversal bar in relation to 1.36 resistance zone. Volume suggests that there’s professional money behind the reversal.
The God-like trader could have picked 140 pips with a risk of 15. The rest of us could at least have gotten Risk to reward of maybe 1:3 or even better.

This is one of the things that makes this way of trading so attractive to me: SL are very small, this in turn creates good and sometimes very good risk to reward. I theorize that this method is profitable even on a 50/50 win rate.
They say you should never try to catch the falling (or rising) knife of price and that’s true. This method though seems to offer a way to catch that knife just as it hits the floor/ceiling and bounces.

I very much like the idea that VSA helps in getting a clue as to what the pro players are doing, because in fact: all we need to do is go with the flow. And the big players create and direct the flow. Knowing what they’re up to is basically priceless, pun intended :slight_smile:

Of course this method offers losing trades as well and I have much much more studying to do. These two charts are to be considered as appetizers of what I’m hoping to achieve.

Btw, this is a 10min chart. I find them quite useful, but they can hardly be found on any trading platforms. They all seem to jump from 5 to 15. Strange.
If you flip to 5 min or 15, you will see that this entry is not at all so apparent on those.

(In case anyone wonders, on the chart is Bollinger bands (yellow) standard settings and STARC (pink) also standard settings. The bottom graph is the MT4 volume indicator, overlaid with a 20 simple MA to help decide if volume is high or not. The MA isn’t really necessary and might be done away with.)

175

eurusd 20090515 1540 gmt

Just one I noticed while at work.

First arrow shows a trade that goes to breakeven, if SL is moved to BE at 1R level. Then it fails.
Second arrow shows another same direction signal. Only difference is that some more accumulation has been going on, plus the second signal candle touches the 1.3560 support.
As we can see, that trade is good for a 3R profit. However, we mortals could have walked away with at least a 2R profit plus one breakeven trade.

In other business, I’ve had a hard time finding the actual book for sale, so I resorted to printing out the pdf of Tom Williams book.
Reading is better done with paper than by staring at the screen. Call me old and conservative, but that’s my opinion :slight_smile:

Seems I can’t do away with those S/R lines really. Shame since I can’t bring myself to liking them. Oh well, the things we don’t do for the hope of future riches huh :slight_smile:

176

I don’t know if it’s an urban legend, but I remember hearing about this guy who landed a commercial airliner thanks to his hours with Microsoft Flight Simulator. This was a long time ago, back in the nineties when that simulator was about the hottest thing you could get your hands on.

Back when I was just starting to look at forex, I came across a simulator for forex trading. Unfortunately I didn’t understand how useful it was then, and it went to the recycle bin.

Completely by chance I came across it again today.

I’m sure I’m not the only one with this problem: the only part of the week when I have some real time for forex is the weekend - when the market is closed. Duh! as Homer would say.
So I make do with evenings, not the optimum time. Mind isn’t razor sharp after a day at work.

This Simulator is actually a great solution. Turn it on and there it is ticking away whenever you please - the beatiful forex market.

Everything about how to use it can be found in the pdf file. Personally I didn’t use the installer, felt safer to do it by hand.

Anyway, I think this is a great tool for all those of us who would like the possibilty to practise trade on weekends or at other times when markets are closed.

Trade_Simulator_setup.pdf (376 KB)

Trade_Simulator_Installer.zip (120 KB)

Trade_Simulator_Files.zip (37.4 KB)

177

Just a short update on what I’m doing.

I’m still reading Tom Williams book. I’ve read about half so far. I have to say that this book unlike anything else I’ve read, book or forum or whatever, this book explains how and why the markets work the way they do.

I consider finding that book the most important step in my learning so far. It’s an absolute read. Period.

I dare to say that before even finishing it. I’ll save the rest of my praise til I’ve finished reading it.

I also used the simulator expert for MT4 today. When you set it up just right, it’s actually just like real trading. Great to be able to spend as many hours as you like on weekends practice trading.

178

Just in case anyone wasn’t clear on who drives the markets.

It’s a bank holiday in the US and activity on the forex is virtually not moving. There’s no big money around to change price direction, and so it just crawls around in the same place. Without the big players this market is about as liquid as Sahara on a dry day.

179

yeah I have notice that, usually I get my setups during Asian and close my trades at the end on NY not this week though :frowning:
in general ( when it comes to trend reversals ) Asian provides the direction then London and NY moves it.
still hanging to my positions till tommorow…

I think those pairs will reverse trend by London
EURUSD,USDCAD,GBPCAD,USDCHF.

180

Well, not much comment warranted. Arrows show points of high activity coupled with reversal bars. Both opportunities would have given nice R:R.

Someday I’ll make a living off of this! No longer a question of if, but of when.

Currently reading through the last pages of Tom Williams book. Will go through it again and take notes. I’ve learned more about trading from that book than by everything else put together.

181

As promised I will try to do a small review of his book, [I]The Undeclared Secrets That Drive The Stock Market[/I].
This is basically the same book as the one called Master the Markets, just without all the Tradeguider promotion.

In order to explain why this book was so fundamental to my understanding, I first need to stray a little.

Early on i was led to believe (my own fault for not doing my own due diligence) that volume in forex was worthless. Period.
I am sure this is what almost everybody thinks. We learn that since there’s no central exchange, there cannot be any reliable volume information. At least not for us retail clients. After hearing this and bowing to the logic of this argument, I, like probably almost everybody else, go on our way and never look back.

Big mistake! Why? Well because there is actually such a thing as useful volume information also in forex.

There’s tick volume. Not true volume but a good enough substitution. Tick volume adds every up and down tick during a bar. The logic is that every tick represents a forex transaction. If we accept that all transactions will be of different sizes and therefor of different volume, still over the long run every tick can be said to represent one average transaction.
Tick volume doesn’t measure volume, that’s true. But it measures the level of activity, which is almost the same thing.

Let’s now introduce Tom Williams’ concept of weak and strong holders. What’s that?
A weak holder is the non professional trader. This trader will frequently panic sell when the trade has gone against him, causing him to be shaken out of his position just before price action reverses. Or he will be unable to withstand the urge to jump in on the action just as the market is reaching a top or a bottom. Weak holders do not know what they’re doing simply.

Strong holders are well capitalized and are the exact opposite. They know exactly what to do. They know the psychology of the markets and will use this to their advantage. They know when weak holders will panic, allowing the strong holders to either accumulate at a bargain level, or to sell at an overly expensive price. in both cases it is to weak holders they sell.

According to Tom Williams, this is how a market works at its core: value is continually transferred from weak holders to strong holders.

Obviously what we as retail traders then need to do is to trade alongside these strong holders. Sell when they sell and buy when they buy. Sounds easy, but as we all know, it’s not.

This is where volume spread analysis comes into play, VSA. This was created by Tom Williams who used to be a syndicate trader in the stock markets in the UK.
He says that the actions of the strong holders, aka smart money or big fish or what will you, are plain to see for everyone. All you need is a bar or candle chart and a volume histogram.

He points out that only the strong holders are big enough to move price substantially. For a reversal or rally to happen, strong holders must be active.

The VSA method can be reduced to it’s core idea: the relation between effort and result.
Take a doji after a long rally. Volume on the doji is very high.
What does this mean according to VSA?

It means (probably - VSA is like everything else not perfect) that in spite of high volume, price failed to be pushed up to a higher close - there must have been a lot of selling in that high volume! Guess who’s selling. That’s right - strong holders are selling to weak holders as they now expect lower prices ahead. They are [I]distributing[/I]. What happens next is that since there’s no strong holder interest in buying anymore the market reverses and indeed starts to fall.

It will continue to fall until weak holders panic and start selling. When price becomes attractive, strong holders will step in and buy at these bargain prices, they will [I]accumulate[/I] from the weak holders and price reverses again.

This is repeated endlessly and is how value is constantly transferred from the weak to the strong holders.

As we saw earlier, we can however track the actions and intentions of the strong holders by looking at VSA - effort vs result.

VSA contains much more than that, but this post is already to long. I’ve never found a book that so well explains why the market does what it does.

As an ending note, Tom Williams points out repeatedly that bad news and good news is frequently used by the strong holders to conceal their actions. When all news are extremely bearish, this makes it easier for strong holders to accumulate without giving themselves away and vice versa. He advices against paying attention to news since that will often affect your market view in an adverse way.

All I can say is, get this book and read it! Since reading it I’ve not had a loss in ten trades. That’s quite true, and it’s the first time for me.

182

Thanks for the review…i am now going to buy it!

183

Just thought I’d write a short post about another thing that Tom Williams mentions in his book.

I’ve been through a lot of phases in my short forex life. One of them focused on trendlines and linear regression channels. They’re pretty to look at, but they gave me a headache. How to weed out false breaks and how to find a bounce that doesn’t turn into a break. I added to my knowledge but moved on.

Now Tom Williams has given us a tool that not quite solves the whipsaws but it can be a good decision aid to try to avoid as many as possible.

For instance, let’s say that price has been moving in a channel for several candles. We draw a pretty LRC (linear regression channel) which as we know covers about 95% of the price range.
Sooner or later when then outer lines are penetrated, how do we know if it’s a break or just one of those 5% that will soon move back into the channel?

Look at volume! Is high volume suggesting that there’s power in the break?
I can’t explain it half as well as the writer himself but I suggest that it’s well worth the time to draw some lines and observe volume when there’s a whipsaw vs when there’s a real break. This is something that can easily be done on historical charts.

184

Friday night philosophy

As I’ve been here for a while on this forum I’ve noticed that a lot of people come here, spend a few intensive weeks or even days, and then they’re never heard from again.

I believe that such a simple thing as stubbornness is an important part of making it. It’s no good to be a quitter in this. Many seem to give up after failing once, I’ll bet they don’t have a driver’s license either huh!

I’ll go out on a limb here and suggest that most people of at least average intelligence and with the ability to not give up easily, will learn to survive in the market and even trade profitably.

The fact that 90-95% of new traders wash out, in my opinion depends not primarily on them being stupid, but rather lazy or lacking in will power and stamina. Of course some will be stupid, but I don’t think it’s the number one reason.

I for one intend to keep at this until I get to where I want. Sometimes we all feel like giving up, but those that are called winners by others are the ones who kept trying while others gave up.

Will you keep going or are you a quitter?

Trading is no different than learning anything else - most of us don’t have a clue to start with. That’s one reason why money and risk management is more important than any fancy system - you have to keep your account alive so you can fight (and learn) another day (or candle…) Don’t blow your account and become a quitter.

185

Here’s an idea that could probably be useful to many. I for one intend to use it when I start trading my own version of VSA for real, which I hope will be soon.

The idea is to start small and only increase position sizes in increments as a reward for being consistently profitable. Likewise a losing period would force a decrease of position sizes. This is much like how I understand professional trading desks operate.
I have enough personal experience now with bad behavior in money/risk management to know that this kind of strict rule is necessary for me.

I intend to start trading very small, as Oanda makes that possible, and then I’ll increase my lot sizes little by little after every two weeks if the two week period has been consistently profitable.

This is the evolutionary approach to money management - learn to walk before trying to run. I’ve already run and fallen down and scraped my knee, that wasn’t fun or good for account health. So now I’m going to learn how to walk first.

186

I thought this was kinda funny:

YouTube - Before He Trades a Carrie Underwood Parody

Trading poorly can hurt huh

187

That has got to be the funniest thing I’ve ever seen. :smiley:

I like the slogan on the guys jacket… “I like it doji style.”

I should make that my new sig…