So i’ve been learning how to trade using supply and demand zones. The explanation given to me on why price would have dropped in the below chart is that we had a period (range) where orders were being filled so there was equlibrium. However buy orders depleted leaving sell orders unfilled. Thus supply pushes price down to a level in which there is demand.
This is clear to me and I see the demand zone on the chart by looking left.
I understand that tick volume is how many ticks in price occurred during any given candle. So it would make sense that a large price move would have a large tick volume bar as price moved through many price levels in a fast amount of time.
I have also read that there is a positive correlation between tick volume and real volume. This does not make any sense to me. If price dropped because there was no demand and we see a large tick volume bar, I very much doubt there was a lot of orders being filled as price is tanking… There should be very little real volume because the lack of demand. so there is positive correlation how exactly?
Can nobody explain this? This exposes a major flaw in the though process behind supply/demand inbalance and volume. You cannot have high volume in a large candle by definition. Price is moving swiftly to levels in which there is opposing supply or demand to maintain equilibrium. Thus while these large candles form there should a significant lack of trading. After all you need both a buyer and seller to fill an order. So how could there be a 90+% correlation between real volume and tick volume.
I think about this a lot. Especially after reading Anna Coulings book on volume analysis and Forex for Beginners. Also, @petefader uses vol in his trading strategy.
One thing that I will do, as I trade the daily and 4H charts, is to go down to a much lower time frame for a daily candle with a vol. spike to see where and when that occurred.
For example on a large bear candle there may have been a large cluster of sell orders at the high opening and then perhaps there will be another cluster of sell orders at a lower price while continuing to drive it down and perhaps at the low point it runs into a large cluster of buy orders driving the price back up creating the wick, as seen in your example, or “stopping” volume as Couling calls it.
[quote=“RockerverbFX, post:1, topic:189393”]
I very much doubt there was a lot of orders being filled as price is tanking
[/quote] what may have been filled is a large cluster of sell orders. As mentioned above this could be a large block of sell orders seperated by ticks only and would create the large volume bar with a concentration of filled orders.
Hopefully someone who is far more knowledgable than I can stop buy and clarify this issue.
Forex volume on major pairs is absolutely constant because there are so many competing market makers. That’s why more volume = more ticks, usually. Price is elastic on the 5 minute scale which makes it unpredictable, usually.
I’m not sure you read my original post or just do not understand why the price moves. Price usually moves slowly. Most of the time news Triggers a fast move and it works on supply and demand. So a big move triggered by news has high volume? Are you sure about that? The very reason price moves quickly is because supply and demand were out of balance. If it’s out of balance no trading can take place. Trading only takes place when price is ranging in equilibrium. So for me it’s very confusing how large price movements are met with high tick volume which is supposed to strongly correlate with actual volume. I don’t think it’s logically possible. And even if a huge order was placed to trigger the big move… This does not equate to volume. The volume only rides when there are orders being filled. I’ve never had an answer to this problem that makes sense. I guess it is because most people don’t trades based on supply demand so don’t even think about it.
… being filled at different tick levels. It’s my understanding that volume is only registered when an order is filled at a different tick level to the order immediately preceding it.
I thought If 100 orders get filled and then another 100 orders get filled at the same price, volume doesn’t move. If the next order comes in and is filled at a price level that’s 3 ticiks differnt, volume will reflect the tick difference wether it’s a 100 orders, 50 orders or 1 order… Perhaps someone can bring some clarity to the tick volume issue.
You might be right. I was only interested because I wanted to add VSA into my supply demand trading. And when Sam seiden explained how he thinks the opposite to others in terms of large candles actually showing very little trading ,I knew I couldn’t use VSA because it clashes with what I know regarding orders being filled. I think I will just leave out volume anyway.
