A fully serious disclaimer from the beginning: every analysis based on volumes is very unstable and unreliable on most of the assets, hence this way of locating levels is very specific and should be used with care. It can be used if: 1) you trade an asset that concentrates most of the volume (+80%) of all its "correlees", maybe traded only on one exchange, doesn't have liquid option market and OTC volume is not there. Examples are "standalone" stocks that are not part of any indexes, don't correlate with anything & and traded only on on exchange; 2) you trade all correlees together. Example: you trade both Crude and Brent futures, monitoring several active expiration, not only the front contract. Another example: you trade Gold & monitor the ETFs. Or you trade all the bond futures together (with EU as well).
So, if you trade ES futures looking at volumes, and unless you also monitor SPY, NQ futures, QQQ, all the sector ETFs, individual leading stocks like AMZN & APPL etc etc, all the option markets, darkpools & OTC trades. Unless you trade all of em together (prolly at least 100 assets), you need a reality check in terms of relying on volumes.
Not gonna talk a lot about these PVM levels, but anyways: 1) Instead of bar chart you use a footprint/clusters/whatever you call it, and locate volume modes of every bar; 2) A mode that is lower than the previous one and lower than the next one is a level; 3) A mode that is higher than the previous one and higher than the next one is a level; 4) Positioning happens as explained in "Real levels: positioning and clearing"; 5) Clearing by volume happens this way: first you need to check the amount of volume that was built at the level since it's origin till the end of positioning. Second, you monitor how much volume builds at the level during the tests. When second volume exceeds first volume, the level is considered cleared by volume.
Yes! This is something I've always wondered about (validity of volume, on something [say ES futures] that has lots of "corelees") and never seen many people discuss.
gorx1
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@davewantsmoore, I hope to change that with these posts, markets' overall health & attractiveness for clients => liquidity, volumes & out potential revenues should all improve when all of us trade better and cleaner.
This is something I've always wondered about (validity of volume, on something [say ES futures] that has lots of "corelees") and never seen many people discuss.