The Reality Of Price And Volume

There is no greater reality in trading than price and volume. These are facts, not opinions, and they cannot be distorted or misrepresented. They are what they are and what you see is what you get, as Flip Wilson used to say. WYSIWYG—isn’t that an acronym in computer land these days? Anyway, what you will begin to see as you study the ART system and reality-based trading is that price and volume are your most valuable tools in reading the market.

WHY ARE PRICE AND VOLUME REALITY?
Price and volume are the reality of the market; everything else is a man made measuring device that will most likely form destructive opinions. Some people believe that measuring devices form a road map. However, do we have a road map of our life in advance of our life? I don’t think so. We may have a plan or fantasy about where we want to go, but until it happens, it is still just a fantasy.

THE CASE FOR SIMPLICITY IN A TRADING SYSTEM
The number of trading indicators, oscillators, and information sources available today is astounding. The reality is that “less is more.” If you allow yourself to be inundated with unnecessary information and clutter, you will be drawn further away from the “truths” of the market—price and volume.

Simplicity will be the secret to your success. The ART system will simplify your trading and add structure, which helps to lessen anxiety that can lead to emotional trading.

The ART software is sophisticated, taking into account complex market dynamics and performing highly intricate calculations to deliver highprobability trades. Its genius lies in the way it illustrates this information with clear trade entries and exits.

Let me tell you a little about my trading and how I came to develop the ART system. My story may even resemble some of your trading experiences.

When I started, I read every book and examined virtually every trading system imaginable. From oscillators to powerful neural network computers, I studied it all. The one thing I found was that most systems tried to predict the market—and most failed miserably!

It seems the more we try to predict the market, the more it can’t be done. Just as we cannot predict future life and world events, we cannot predict future market events. The fantasy that many traders believe in is that we can predict the future of price activity. The reality is that we cannot. Hopefully, I’m not bursting any bubbles out there, but better to hear it now than lose a ton of money later!

The most successful traders fully understand this concept, accept it, believe it, and implement it. They trade based on the current reality in the market versus the fantasy. Master traders grasp the concept of risk and probabilities in trading. They recognize and respect the concept of money management and stop-loss setting. In addition, they understand that trading is both a science and an art.

If trading were just science, you could buy a mechanical trading system, start it, walk away, and come back and be rich. If a “black box” system did exist, it would be so expensive that you and I could not afford to buy it. In fact, it would probably be kept so secret that we would not know it existed! Don’t get me wrong—there are some good technical science “tools” on the market today, but remember, they are tools only, not the “Holy Grail.”
Read More: The Reality Of Price And Volume

Volume – The Key to the Truth

Volume is the major indicator for the professional trader.
You have to ask yourself why the members of the self regulated Exchanges around the world like to keep true volume information away from you as far a possible. The reason is because they know how important it is in analysing a market!

The significance and importance of volume appears little understood by most non-professional traders. Perhaps this is because there is very little information and limited teaching available on this vital part of technical analysis. To use a chart without volume is similar to buying an automobile without a gasoline tank.

Where volume is dealt with in other forms of technical analysis, it is often viewed in isolation, or averaged in some way across an extended time period. Analysing volume, or price for that matter, is something that cannot be broken down into a simple mathematical formula. This is one of the reasons why there are so many technical indicators out there – some formulas work best for cyclic markets, some formulas are better for volatile situations, whilst others are better when prices are trending.

Some technical indicators attempt to combine volume and price movements together. This is a better way, but rest assured that this approach has its limitations too, because at times the market will go up on high volume, but can do exactly the same thing on low volume. Prices can suddenly go sideways, or even fall off, on exactly the same volume! So, there are obviously other factors at work.

Price and volume are intimately linked, and the interrelationship is a complex one, which is the reason Trade Guider was developed in the first place. The system is capable of analysing the markets in real-time (or at the end of the day), and displaying any one of 400 indicators on the screen to show imbalances of supply and demand.

Urban Myths You Should Ignore!
There are frequent quotes on supply and demand seen in magazines and newspapers, many of which are unintentionally misleading. Two common ones run along these lines.
• "For every buyer there has to be a seller"
• "All that is needed to make a market is two traders willing to trade at the correct price"
These statements sound so logical and straight forward that you might read them and accept them immediately at face value, without ever thinking about the logical implications! You are left with the impression that the market is a very straight forward affair, like a genuine open auction at Sotheby's perhaps. But these are in fact very misleading statements.

Yes, you may be buying today and somebody may be willing to sell to you. However, you might be buying only a small part of large blocks of sell orders that may have been on the market-makers' books, sitting there, well before you arrived The market will be supported until these sell orders are exercised, which once sold will weaken the market, or even turn it into a bear market.


So, at important points in the market the truth may be that for every share you buy, there may be ten thousand shares to sell at or near the current price level, waiting to be distributed. The market does not work like a balanced weighing scale, where adding a little to one scale tips the other side up and taking some away lets the other side fall. It is not nearly so simple and straight forward.

You frequently hear of large blocks of stock being traded between professionals, by-passing what appears to be the usual routes. My broker, who is supposedly "in the know", once told me to ignore the very high volume seen in the market that day, because most of the volume was only market-makers trading amongst themselves. These professionals trade to make money and while there may be many reasons for these transactions, whatever is going on, you can be assured one thing: it is not designed for your benefit. You should certainly never ignore any abnormal volume in the market.

In fact, you should also watch closely for volume surges in other markets that are related to that which you are trading. For example, there may be sudden high volume in the options market, or the futures market. Volume is activity! You have to ask yourself, why is the ‘smart money’ active right now?
Read More : Volume – The Key to the Truth

What is Bullish & Bearish Volume?

There are only two basic definitions for bullish and bearish volume:
1. Bullish volume is increasing volume on up moves and decreasing volume on down moves.
2. Bearish volume is increasing volume on down moves and decreasing volume on up moves.
Knowing this is only a start and in many cases not a great deal of help for trading. You need to know more than this general observation. You need to look at the price spread and price action in relation to the volume.

Most technical analysis tools tend to look at an area of a chart rather than a trading point. That is, averaging techniques are used to smooth what is seen as noisy data. The net effect of smoothing is to diminish the importance of variation in the data flow and to hide the true relationship between volume and the price action, rather than highlighting it!

By using the TradeGuider software, volume activity is automatically calculated and displayed on a separate indicator called the ‘Volume Thermometer’. The accuracy of this leaves you in no doubt that bullish volume is expanding volume on up-bars and decreasing volume on down-bars.

The market is an on-going story, unfolding bar by bar. The art of reading the market is to take an overall view, not to concentrate on individual bars. For example, once a market has finished distributing, the ‘smart money’ will want to trap you into thinking that the market is going up. So, near the end of a distribution phase you may, but not always, see either an up-thrust (see later) or low volume up-bars. Both of these observations mean little on their own. However, because there is weakness in the background, these signs now become very significant signs of weakness, and the perfect place to take a short position.

Any current action that is taking place cannot alter the strength or weakness that is embedded (and latent) in the background. It is vital to remember that near background indications are just as important as the most recent.

As an example, you do exactly the same thing in your life. Your daily decisions are based on your background information and only partly on what is happening today. If you won the lottery last week, yes, you might be buying a yacht today, but your decision to buy a yacht today will be based on your recent background history of financial strength appearing in your life last week. The stock market is exactly the same. Today’s action is heavily influenced by recent background strength or weakness, rather than what is actually happening today [this is why 'news' does not have a long term effect]. If the market is being artificially marked up, this will be due to weakness in the background. If prices are being artificially marked down it will due to strength in the background.
Read More : What is Bullish & Bearish Volume?