Friday, July 24, 2009

The Importance of Tracking Where Volume Trades

Notice how we are beginning to build volume and accept value below the volume-weighted average price (red line) early this morning in ES trade. I like to see how many contracts are executed at various prices during the day (histogram at right) to show how the market is placing value in real time. We are trading within the overnight range, but often a breakout from that range is preceded by a building of volume above or below the range midpoint (VWAP). Remember: a trend day will create increasing distance between price and VWAP; a range day will oscillate around VWAP. We saw yesterday how important it is to make the right early call on day structure. Many of the most challenging days are ones that start as range days and morph into breakouts and trending ones. Tracking volume at price is one way of gauging the likelihood of such morphing.


Morad Askar said...
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Matt Fahmie said...

We are indeed at a key inflection point, depending on how we trade relative to this high volume cluster(969-968)from the first half hour will determine how the rest of the day will structure itself. I have attached a picture of a similar volume at price chart, but with parameters set to total volume and shading set to 10000 volume as the darkest. Time scale is 30 minutes.

wsjalerts said...

Can you please tell what software are you using for the chart you uploaded? Thanks.

casimeer said...

I have been interested in the volume cluster chart. where can I get those chart?

Brett Steenbarger, Ph.D. said...

Hi wsjalerts and casimeer,

The chart displayed is my default screen for the Market Delta application.