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There are essentially three main price-volume conditions that you need to
concern yourself with, and they apply equally to stocks and commodities.
1) Increasing volume in the direction of the trend with decreasing volume on
counter-trend retracements. This is a healthy trend.
2) Decreasing volume in the direction of the trend, especially as price
makes new highs or new lows. This is generally indicative of a 'struggling'
market. It is not especially healthy. You will often see a re-test of a
prior high or low made on decreasing volume. This is classic divergence
theory. Momentum oscillators will also often reflect a similar divergence
at these points.
3) Increasing volume on decreasing ranges [daily, hourly, etc]. This is
normally indicative of a turning point or a reversal of the prior
directional move. Think of it as buyers accommodating sellers [or vice
versa] at unchanged prices. One side [the bulls or bears] steps in and sops
up all the available supply [or demand] without a concession in price. Bill
Williams thinks he invented this and calls it a 'squat' - of course nothing
could be further from the truth. This condition was identified at least as
early as 1910.
Open Interest is perhaps the greatest single indicator known to the futures
market but perhaps also the most mis-understood and under-utilized
indicator. The signals [albeit subjective] that one can obtain from the
daily price vs OI changes are so good, I often feel they [the exchanges etc]
purposely delay posting the changes until the next session in order to
protect certain large interests.
In short, any directional move not accompanied by an increase in OI is
suspect. A succession of moves not confirmed by an increase in OI is also
suspect. The bottom line is that people are either opening new positions or
closing old ones. Either way, the health of the rally or decline can be
judged by the amount of interest people have in opening and closing
positions.
Dtrader
-----Original Message-----
From: Phil <rhodes@xxxxxxxxxxxxxx>
To: Omega-list@xxxxxxxxxx <Omega-list@xxxxxxxxxx>
Date: Sunday, April 04, 1999 2:17 PM
Subject: Volume?
:
:
: I have been thinking about volume lately, and it seems that volume in a
:strong trend decreases when the trend is about to reverse? Like in an
:Elliot Wave 5 volume is usually lower than earlier in the move? Also on
:retracements of a strong trend, volume ususally is less? So I was
:wondering first, am I correct in my thinking of volume? Second, what are
:some of the best volume indicators to use to show this? It seems to me
:that volume may help in showing a trend is getting close to ending and also
:help in showing if move is a retracement in a trend or a new trend? I am
:mainly talking about futures? The main thing I am looking at is how can
:one help to show when a strong trend may end and not just be a retracement?
:
: Any info on this and how anyone uses this would be helpful!
:
: Also info on open interest? How can that be used?
:
: Thank You,
:
:
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