I recently posted on the topic of denominating market charts in volume units, rather than time. Here we see volume bars for the S&P 500 e-mini (ES) futures, as drawn in e-Signal. Note how the chart condenses the overnight periods (of low volume) into fewer bars to give a clearer view of market action across a number of days. We can see clearly that the market has shifted from a trending mode to one of short-term range consolidation.
Once each bar is equivalent to all others in terms of volume of contracts traded, traditional technical indicators--such as trendlines, momentum oscillators, moving averages, cycles, and Bollinger Bands--become interesting. The challenges normally associated with how to account for overnight trading fly out the window.
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5 comments:
I have been using Tick charts now for several years but have recently been experimenting with Volume-based charts. Do you have any thoughts on how the two would compare? I would assume that Volume-based charts might be more representative of higher time frame participation, as Tick charts would include any size trade in the 'count' for each bar, but don't have sufficient experience with both to formulate a firm opinion.
One thing I find extremely helpful is
Relative Volume. This is not possible
on a volume based chart. How do you
propose an integration of judging
relative volume comparisons with the
use of volume based charts?
Cleon makes an interesting point with
tick based charts. Relative colume can
be used with tick bases but not volume
Based charts. If we can develop a tick to
Volume relative comparison, we can used
tick based chart with relative volume
to compare one bar to the next.
I also believe volume based bars would be
Better used in a volume profile format.
This would create a similar look to a
market profile and visually display
balanced and imbalanced inventory in
the order book with greater clarity.
One can also track trade faciliation
much easier by comparing these volume
based profiles first standard deviation
width and overlap relative to the prior bar.
This then enables one to visualize
Continuation or change much easier.
I also believe traditional technical
Indicators might become interesting,
but not necessarily useful.
Volumes are very important. One reason why swing traders should also look at Terry Laundry's T Theory, he uses volume oscillator, very similar concept. His work pointed to the rally legs very early including timing.
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