This post was contributed by a guest author, and does not necessarily reflect the views of Richard or MovetheMarkets.com
I’ve been reading a bunch on volume/price analysis lately, and I’ve started watching constant volume candle charts as well as regular time-discretized charts. A volume candle is completed after a certain number of shares trades, while a standard time candle is finished after a certain amount of time passes. On a constant volume basis it’s easier for me to see the buying and selling pressure acting on the price. Based on a volume candle chart, I went short Hansen Natural Corp. (Nasdaq: HANS) yesterday. Here’s the volume chart (200,000 shares/candle):
and the standard chart (30 min.):
I used a Fibonacci retracement on the 30 min. chart for the price target ($27.50, the opening range low), but I used the volume chart for my entry. Looking at the 30 min. chart, there’s not much of a setup to my eyes, but the volume chart clearly shows the price making a lower high around 10:54 am, revealing that selling pressure was larger than buying pressure. When price failed to make a new high, I entered at the green line ($28.64), with a stop at the red line ($29.23). The stop was above the lower high which was my trade catalyst–if this proved wrong, then my whole read of the trade was wrong. The trade quickly moved in my favor, so it was proved correct immediately (Thanks to the Phantom of the Pits, like Zoomie has said).
I had to be away from my computer in the afternoon, so I tightened the stop and got shaken out at $28.31 for a 0.5R gain. It never made it back to the opening low, but if held until end of day it would have been about 1.1R. Finally a win! Great kid–don’t get cocky! (and don’t quit your day job…)
| Stocks Mentioned In This Article | |
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| Stock | Links |
| HANS |  |  |  |
This post was contributed by a guest author, and does not necessarily reflect the views of Richard or MovetheMarkets.com
November 7th, 2006 at 12:02 pm
Wow. I have never seen those candles before. Interesting! What are you reading for information on price/volume relationships?
November 7th, 2006 at 1:13 pm
… and if your position size is 200,000 shares, you can have a candle all to yourself!
November 7th, 2006 at 1:24 pm
yeah, I’d also like to know what you’ve been reading. Do you also look at equivolume charts (which use time divisions, but are width-deformed by the amount of volume)?
November 9th, 2006 at 5:31 pm
Here’s what I’ve been primarily reading:
http://www.trade2win.com/boards/showthread.php?t=11104
http://www.trade2win.com/boards/showthread.php?t=20336
http://www.trade2win.com/boards/showthread.php?t=12480
There’s a member on that discussion board named dbphoenix. I find him to be insightful, and those threads really helped me understand a lot of things. He tends to answer questions with more questions, but once you get past that and really think (which is probably his objective) things start to make sense. The biggest ahas for me were these:
1. There’s no such thing as more buying than selling or vice-versa: For every buy there is a sell!
2. Buying or selling ‘pressure’ are what move price. There’s a subtle difference between volume, which is a measure of transactions, and pressure.
I may post a commentary on this in the future, and I’m also working on something about undercapitalized trading currently.
@Richard: I’ve looked at them before, and it gives a good visual blend of price and volume info, but I never really gained any insight out of it. I’m just beginning to really understand what price and volume really represent, so that may change in the future…