Friday, September 18, 2009

Trading With Volume Flow Data: An Illustration

Here is a trade I placed using only volume flow data for the trade idea.

The chart is denominated in units of 30,000 contracts; each bar does *not* represent time. I will discuss this further later today.

We see volume at bid exceeding volume at offer from the market open (bottom histogram).

At the 8:52 AM CT bar at ES 1066, I saw volume dry up on buying (blue arrow). I sold for a move back to VWAP and the recent bar lows at 1063.25. Downside volume expanded as we broke below VWAP--what I would expect on a range day--and I later covered at 1063 as we made new morning session lows.

I would have stopped the trade quickly had upside volume expanded at that 1066 area.

It's an example of a trade that integrates auction information at the day time frame with volume flow information within the bar. That's not to say that other data wouldn't have been helpful for the trade; just that a great deal of information can be gleaned from a proper synthesis of auction data across timeframes.

More on trading with volume flow can be found here.