9/11/2011

Measure

My thesaurus offers gauge, calculate, compute, determine, assess, quantify, evaluate, appraise, and rate as alternate words for measure.

All those words work in some way for what we are trying to accomplish by charting, or technically analysing the market we trade.

This begs the question, what exactly can we measure in a bar of data on our chart?

We can measure price, volume, range, and the number of trades.

Am I missing anything?

The price bar will give us bids and asks and the last transaction price as the bar fills. We can see the volume of contracts traded, and we can break down that volume into up tick and down tick volume. We can see how high and how low the price traded during the bar formation (range) and we can see how many trades took place during that bar.

Note that the number of trades and volume are not the same thing. A tick chart (why they call this a tick chart is beyond me) measures how may trades happen and forms the bar when the prescribed number is achieved. So with a tick chart a "trade" can be for 1 contract or 1000 contracts and still only count as one tick. So if I place a trade for 1 contract and LW places a trade for 1000 both only count as 1 tick. With a volume chart they count the total number of contracts traded.

With all these things to measure we can use this data to cut off when the bar is formed rather than just cutting off the bar based on time served. We have range bars, tick bars, and volume bars to quantify when and how our "price" bar is formed.

So if range, price, number of trades, and volume are the only data points we have to measure would it not make sense to try and use all of this data in our trade plan?

I measure the bar's range with ATR, I measure the number of trades by using a tick chart, I use the price data within the bar to measure the angle of ascent or descent of the EMAs and the level of the ADX.

What's missing?

Volume.

Hmmmm



I'd be interested in anyone's ideas on how they use volume in their trading.

Well maybe not just anyone, someone who knows what they're talking about preferably.

6 comments:

Sandy said...

A lot of people have often told me I don't have a clue, nevertheless; may I venture that since you already use Sierra chart maybe you can look up CDV or delta volume.
It is a potent study and I wish it was on Ninja or Ensign but it's only on Sierra and Linnsoft and CQG

Solfest said...

Well go ahead and elucidate.

Solfest said...

I'm using a uptick downtick differential right now.

(UT - DT) > X for longs and vice versa for shorts.

Seems to kick out the big exhaustion bar that would give me a trend signal but actually was the end of the trend.

Sandy said...

CDV is similar but adds the volume over a number of ticks or a time span and then uses the differential between supply and demand. A net of bid vs ask built over time. Some say it is incomplete and often it is not clear in balanced markets but it is worth examining as several examples that I have personally seen on my trial of Linnsoft did seem to hold promise.
It's just that I hated the clumsiness of Linnsoft so much I gave up on it reverting instead to EminiWatch's proprietary volume indicators (which are built for the indexes but not useful at all on crude).

Solfest said...

I'll monitor this for a while and see what happens.

Have a good week Sandy.

Oh and stop posting those MT Predictor trades which make the rest of us feel rather insignificant. :)

TST said...

Last week I erased the lower volume bar . The "noise" of volume therefore decreased, up to 50% - less noise , less headache. I plan to take action on my setup only when I see an increased "green" volume bar. But I have yet to see the positive result in my trading :)