Why Volume MATTERS! -a TV tutorial-
I'm sure that you've heard a lot about "volume"... But you have probably found it pretty hard to make heads or tails about what it actually means and how you can gauge what may happen to price by reading volume.
I have long found that volume has been an "enigma" as a trader. Seemingly no real method to it's madness, but I have always heard that it is in fact a VERY important tool in trading. Honestly, it took me a while to comprehend what it actually means! Why some areas have high volume and low volume, and how to make sense of it.
The best way I have heard volume explained is that it is a measure of traders' PAIN.... While that is not a far off description of volume, I have a better explanation for volume: INTENT.
As you can see in the main chart above, I'm using several methods to show you different support and resistance levels. THEREIN LIES THE KEY...Resistance and support by itself is useless, because you can't gauge price's intent to cross it or bounce from it..... But VOLUME is the key to unlock price action's intent of bouncing from support or resistance or crossing it!
Here is the best way to get your mind around what volume actually means to you:
-LOW VOLUME at a resistance or support point means that there is very little INTENT to cross above or below it. (BOUNCE)
-HIGH VOLUME is the intent of market makers to push through either a support or resistance price point.
Seems super easy right?
Well...... Not so fast.
If you have spent any time around charts, you understand that there are two distinct different ways to measure support and resistance.
1) Either at key bottom or top consolidation levels.
2) Trend lines
If you take a look at price currently on Bitcoin in relation to support or resistance, you will see that we have just crossed right above a resistance trend line... Most traders would likely jump right into a long here, not recognizing that we are also at a price resistance point (easily seen on VERTICAL VOLUME PROFILE).
Would you long here, or would you short?
Answer: You would likely short here...
Why?
Answer: It is not just necessary to understand trend lines being resistance and support. You also need to see price points of resistance and support. Currently, we are seeing low volume at an obvious price resistance point (as seen on vertical volume profile). This gives you an indication that just because we have pushed past a trendline, volume is rejecting this price area.... IF, and only IF we pushed past 49200 on this chart with HIGH VOLUME would we stop loss and go long. Otherwise, we have a reason to believe that market makers are not interested in moving higher here, and we simply retraced up only to go right back down from here.
If you notice the red boxes on volume, the arrows that point towards price will highlight the fact that price always ended bouncing from a resistance or support point on low volume. Every high volume bar you see on the chart, gave intent on cross either a resistance/support trend line OR resistance/support price point.
Hope this helps you become a better trader to base your trades on volume instead of simply support or resistance!
I have long found that volume has been an "enigma" as a trader. Seemingly no real method to it's madness, but I have always heard that it is in fact a VERY important tool in trading. Honestly, it took me a while to comprehend what it actually means! Why some areas have high volume and low volume, and how to make sense of it.
The best way I have heard volume explained is that it is a measure of traders' PAIN.... While that is not a far off description of volume, I have a better explanation for volume: INTENT.
As you can see in the main chart above, I'm using several methods to show you different support and resistance levels. THEREIN LIES THE KEY...Resistance and support by itself is useless, because you can't gauge price's intent to cross it or bounce from it..... But VOLUME is the key to unlock price action's intent of bouncing from support or resistance or crossing it!
Here is the best way to get your mind around what volume actually means to you:
-LOW VOLUME at a resistance or support point means that there is very little INTENT to cross above or below it. (BOUNCE)
-HIGH VOLUME is the intent of market makers to push through either a support or resistance price point.
Seems super easy right?
Well...... Not so fast.
If you have spent any time around charts, you understand that there are two distinct different ways to measure support and resistance.
1) Either at key bottom or top consolidation levels.
2) Trend lines
If you take a look at price currently on Bitcoin in relation to support or resistance, you will see that we have just crossed right above a resistance trend line... Most traders would likely jump right into a long here, not recognizing that we are also at a price resistance point (easily seen on VERTICAL VOLUME PROFILE).
Would you long here, or would you short?
Answer: You would likely short here...
Why?
Answer: It is not just necessary to understand trend lines being resistance and support. You also need to see price points of resistance and support. Currently, we are seeing low volume at an obvious price resistance point (as seen on vertical volume profile). This gives you an indication that just because we have pushed past a trendline, volume is rejecting this price area.... IF, and only IF we pushed past 49200 on this chart with HIGH VOLUME would we stop loss and go long. Otherwise, we have a reason to believe that market makers are not interested in moving higher here, and we simply retraced up only to go right back down from here.
If you notice the red boxes on volume, the arrows that point towards price will highlight the fact that price always ended bouncing from a resistance or support point on low volume. Every high volume bar you see on the chart, gave intent on cross either a resistance/support trend line OR resistance/support price point.
Hope this helps you become a better trader to base your trades on volume instead of simply support or resistance!
Comment:
Comment:
ONE LAST QUICK THING TO CLARIFY ABOUT HIGH VOLUME!!!
High volume during price discovery (when we shoot PAST a resistance or support area) can also be a STOPPING measure or is indicative of a potential bounce zone after a large breakout or breakdown.
High volume during price discovery (when we shoot PAST a resistance or support area) can also be a STOPPING measure or is indicative of a potential bounce zone after a large breakout or breakdown.
Comment: