I hear everyone always talk about volume, and how low volume on up days is a bad thing...blah, blah, blah. What I don't hear people talking about is how much volume is takes to move a stock or index a certain amount.

Did anyone who read about Jesse Livermore ever wonder what his tape reading was all about? How in the heck did he know what the path of least resistance was way back in the early 1900's using ticker tape where all you see is price and volume? There was no Elliot Wave, MACD, RSI, or genetic algorithms.

I have to take an educated guess that he figured out that when it's tough to bring a stock down (meaning the change in price / volume is lower than average), but it's easy to take a stock up (change in price / volume is higher than average), the path of least resistance is up.

Quick example: Just look at any ETF's monthly chart and volume. Notice that it took 1.2 billion shares traded to get SPY down to 116.37. Now, SPY just retraced the whole move down on half that volume. The path of least resistance is up. If we start seeing days where it takes a bunch of volume to move the averages up OR it takes little volume to move the averages down, then maybe we're at a turning point.

If you start thinking from this perspective, I bet you're going to do better. If you already do (I think da chief might be doing this), then more power to you.

P.S. It was still easier to take the market up on the 4th than it was to take the market down today...

D

Interesting thought, Dan. One thing that Livermore would often do is to test for the line of least resistance (LOLR) in the following manner - he'd sell (short) a big block of stock and watch how far (if any) this depressed price. Then he'd do it again, and perhaps a third time. Then after selling 3 big blocks of stock, if the price had barely budged - if it had held without declining on his sell orders - THEN he'd begin his real move- he'd cover the shorts and start accumulating. And as he bought, he wanted to see the price being marked up sharply on his buy orders - if not, he'd STOP buying.

IOW, just as you suggest - he would get long a stock IF it would NOT move down on big selling (implying big demand), and IF it moved up sharply on big buying (indicating limited supply). Then and only then would he conclude that, in fact, the line of least resistance (LOLR) was truly UP.

He'd go through the exact opposite exercize in order to determine that the LOLR was down, and that it was, if fact, time to take on his short line. He'd test the stock to see how it handled buy orders first - he'd want to see it refuse to advance on his big buy orders, AND he'd want to see it crack hard on his sell orders - an indication that there was just no demand - AND that the LOLR was DOWN.
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For me, the LOLR is defined by cycles, sentiment and momentum. And currently, these all say that the LOLR is clearly UP..........

Exactly IYB. The thing about "reading the tape" is that it confirms if your thoughts are right or wrong. It's like when everyone started shorting Amazon.com back in the hayday. They all knew it was way over-priced (value wise), but the path of least resistance was up. You might be right in the end, but not before getting your clock cleaned. If you think your idea is sound, just wait until the path of least resistance is clear as day and you will be rewarded. Good 'ol Jesse had it right back in the day...and there's still nothing new under the sun...especially in the stock market.

D

I know this doesn't strickly address your issue but if the end result is better volume
information in which to calculate market directions, this my be interesting for those who
are capable of taking it to the next level.



My BLUE Play and Stop FF & RW buttons on the side of the chart may look different
on your page but they will allow one to pause the demo as it move
thru information quickly

Here's da link for those interested

Liqudity Analyzer Demo Webpage

It seems pretty nice except that the data is only updated every 30 minutes.

Dats funny cuz the Top left Data Selection widow shows a LDB Volume (15min) selection

right there.

You seem to have analyzed the service muy el rapido, dont over look anything

"Downloading Intraday data updates are made available every 15-minutes
throughout the trading day. This only applies to LDB® data and not to the options or
Commitment of Traders data."



Here's what you get ............................... Details

Buy/Sell/Net Volume Transactions..............Totals of Buy, Sell, and Net Volume organized by...

*Trader Type (CTI)
*By Price (Strike for options)
*Time Frame (intraday, daily)
*Contract Month (specific, continuous, combined months)
*Volume Type (spread, non-spread, combined)
*Reporting type (electronic, open-outcry, combined)


Volume/Open Interest Summary....................................
Summarized Volume totals by contract month. The following items are captured:

*Total Volume (pit, electronic, combined)
*Total Open Interest, and Open Interest Change
*Exchanges
*Give-ups
*Adjustments

Commitment of Traders reports..............................................
Ten different views of the Commitment of traders report data. Over 130 data items are available. Data is organized as follows:

*Open Positions
*Changes in Commitments
*Percent of Open Interest by Trader Category
*Traders by Category
*Percent of Open Interest by Large Traders

Put/Call Ratios.................................................................
Six different looks of the Put/Call ratio by contract month. The following types are included:

* Put/Call ratio for all options
* Put/Call ratio using In-the-money options only
* Put/Call ratio using Out-of-the-money options only
* The above 3 dollar weighted using Strike Open Interest

Implied Volatility and Greeks...........................
Open interest and volume statistics for all listed options. Includes breakdowns by in-the-money and out-of-the-money options.

* Settlement's by Strike (Last, Previous, Open, High, Low, Life High and Low).
* Total Volume (pit, electronic, combined) by Strike
* Pain Strike™ Prices
* Total Open Interest/volume at Pain Strikes™
* Total Open Interest, and Open Interest Change by Strike
* Exchanges, Give-ups, Adjustments
* Total Volume/Open Interest for different option categories.


Market Profile®....................................................
LDB® data available by trader type (CTI) along with the time brackets traded. Market Profile® data is organized by:

*Price Quadrants (1,2,3,4)
*Opening price range
*Closing price range
*High Price
*Low Price
*Value Range

Downloading....................................................
Intraday data updates are made available every 15-minutes throughout the trading day. This only applies to LDB® data and not to the options or Commitment of Traders data.

Software Updates
Currently, unlimited updates to Liquidity Analyzer® are available. Each time you download, if a newer version is available it is downloaded and installed automatically.

Historical Data
Liquidity Analyzer® comes with the most recent 60 days of historical data. Data back to Jan 1st, 2003 is available

i looked at volume indicators at stockcharts: PVO, OBV . i guess these could be used to indicate your point. i looked at a few charts using these and your conclusions seems to be right and wrong. a graphical illustration would be helpful

mr dev post was to difficult

The idea behind the OBV indicator is that changes in the OBV will precede price changes. A rising volume can indicate the presence of smart money flowing into a security. Then once the public follows suit, the security's price will likewise rise.

Like other indicators, the OBV indicator will take a direction. A rising (bullish) OBV line indicates that the volume is heavier on up days. If the price is likewise rising, then the OBV can serve as a confirmation of the price uptrend. In such a case, the rising price is the result of an increased demand for the security, which is a requirement of a healthy uptrend.

However, if prices are moving higher while the volume line is dropping, a negative divergence is present. This divergence suggests that the uptrend is not healthy and should be taken as a warning signal that the trend will not persist.

The numerical value of OBV is not important, but rather the direction of the line. A user should concentrate on the OBV trend and its relationship with the security's price.

On balance volume doesn't work. I believe Granville made that one. It tells you much of nothing. More volume does not mean smart money is getting into a stock. There's no public indicator that does what I talk about. EOM (ease of movement) is the closest. I can push you in the right direction with what I already said...

Change in price / Volume ........it's all about how easy it is to move a stock. Knowing the path of least resistance is the first part...chart patterns, internals, sentiment all matter as well.

D

This is an interesting thread.

I hadn't thought about this type of thing in a while, and I suspect that others haven't either.

Post of the Day. I'm pinning it.

Good work!

The Admin

How often do you see bids pulled on the last second? Stock that keeps on going up with no down ticks and down big on next day? Stocks that looks like she is falling off the cliff up big the next day?......

Paul- The reason what you've decribed happens, imho, is because of market psychology in its finest and purest form: The last stage of any cycle - whether we are talking about a 20 year cycle or a 20 hour cycle - is euphoria (or capitulation). A trend is born of fear, grows on skepticism, matures on confidence, and dies of euphoria. Thus when you see the stage where, as you say, there are no opposing ticks (to speak of) and the stock just runs one way unopposed - you know that you are seeing the final stage (capitulatiom/euphoria) of a minor trend. The next day, a new trend begins (often in earnest) in the opposite direction.

I am constantly on the watch for buying or selling opportunities such as you've decribed - the capitulation stage, when they fit in with my overall trading plan. This last Teusday morning, for example, saw this kind of up action in QQQQ, as well as several individual stocks, and I exited call options. Fwiw. D

Re Jesse and volume....

...I LOST a bet once. I said Jesse used volume. Another guy said he didn't. I said, "Just check in "Reminiscenses..." and you'll see. He said, "No, U check. And if u're wrong, I'm right YOU'll see". So I did check. Not one direct reference to volume in the book. I lost the bet.

Smitten is more suggestive of Jesse using volume in his books about Jesse...but that's Smitten writing and not Jesse.

I suppose that in place of actual volume figures, Jesse may have LISTENED for the SOUND of volume in the ticker....even if there were no figures accompanying, and no 2 minute charts on a computer to track.

TDM

He never talks about what goes into his tape reading, other than to
say it worked for him. That doesn't mean he didn't use volume.
People will often tell you part of the truth without giving away the
farm.

In fact, when decribing his other operations, all he does is talk about
volume...giving valuable lessons about the proper times to sell
and cover. As IYB said, he often tested the market with orders to
see how it would react. Of course volume was a factor in his decision
of how much to buy or sell and when.

The amount of volume (or more importantly money) is takes to move
a stock is very important...it's one of the basic principles of trading
ANY market. FWIW

D

I think Lowry's Buying Pressure and Selling Pressure are the closest thing to what you're talking about.


Paul Desmond's 2002 Dow Award paper discusses the concept of points gained and points lost used in conjuction with adv and dec volume.

I just finished reading Jesse Livermore's authobiography by Sarnoff.. I think this is the "real" story there..Smitten is just hype in order to sell more book.

danzman,

Any thoughts on how time might factor in to your thesis, or do you suspect it is best applied only to adjacent bars?

In other words, taking your monthly view over a much longer time frame, could one interpret that because more volume has been required to move price from the October, 2002 low than from March, 2000 to October, 2002 that the long term path of least resistance is down?

Insight/thoughts appreciated.

You must understand that if you use very long-term data, you must contend with the rising volume as more and more people enter the market. SPY trading is much higher now than in 2000. If we look at recent months of SPY trading since 2004, you can observe that the above normal volume came on down months.

If you zoom in even further, you will see that most of the volume came near the bottom. That means it was tough to move the market down after it reached a certain level (change in price / volume is smaller than average). As the market rose, it took less money to move it...the path of least resistance is up.

Now here's an observation that you should also think of. If it's tough to move the market down (someone is buying to match the selling) but then that support area fails (and it's easy to push it down now), watch out.

D

What works for me is to look for weak stocks when the markets are having a decent up day and strong stocks when the markets are having a down day.

I make note of the strong and weak ones and watch them daily. The daily and 60 min charts help me figure out the best entries and exit points.

I nailed QLGC short a while back when it was dying while the rest of the market was still moving higher. Then this strategy helped me go long on the same stock after it broke its downtrend and started moving higher.

It isn't an exact science but it works great for identifying stocks that are good longer term swing trades.

Cap