Holiday musings (1)

It’s been a while since I actually blogged on Vtrender other than my routine notes on the market. The exchanges blessed us with a holiday in the middle of the week, so was a good time to restart. Happy Ganesh Chaturthi to all our readers.


For me a holiday in the middle of the week, is a better time to reassess and realign to the market moves, rather than the ones at the start or end of the week which do contribute to a lot more family time though.


If you are on this blog and reading this, then you may or may not have fully realized the importance of volume in our analysis. But regardless you know that it has an impact. Our Blog is all about volume analysis and I have been quoted before as saying “if you are not studying volume, you are effectively looking at the market through one eye”.


We are proud believers in Auction Market Theory- simply put an interaction of price, volume and time. All 3 needed to be studied thoroughly more so in the shorter time frame duration. All said and done, every trading indicator built is a function of the above 3, but truth be told if you are looking at longer time frames then, you can get away with volume and time and still get it right, but if you are trading the shorter time frame especially the intra-day sphere and you function without an understanding of traded volumes, then you might as well donate your money to a charity.


There are thousands of stories out there, about how intra-day traders lose money. Back in the day, I’ve done my bit interacting with failed intraday and short-term traders and the story has a basis, but the truth is that the failure rate has been compounded multiple times through a lack of education in the process of day trading as well as using ineffective day trading techniques. If you are trading short term and intra-day  with techniques used to identify stock opportunities and again one which you will hold for up to 6 months and more, what are the odds of getting successful in trading intra-day?


All I know is that I have been there before, and for me they have not worked. So today for me, the shorter time frame charts are only about volume, price and time and nothing else  and my read on the same is to see the interaction live. Price advertises opportunity, volume confirms it and time regulates it.


At Vtrender, we are big believers in Traded Volumes. There is a section of Market profiles who look at the OrderBook and orders coming into the market to arrive at a bias. It’s an extremely good method and can put you ahead of the curve, except that it has one big disadvantage- Spoofing.


Spoofing is simple placing an order with no intention of executing it. You will see it everyday in the stock prices you track, in the Options segment ( mostly OTM) and in the futures segment too. If you have been trading long enough then you may not get fooled by spoofing, but the intention is often to fool the computer program reading the incoming orders. And so we get the sharp intra-day spikes on huge volumes with no real cause behind it. When it happens it’s not clear whether the algo or the spoofer took a hit, but one of them surely pays the price.


So to avoid spoofing, we stay safe with Traded Volumes and then see if the volumes are generated on the buy side or the sell side. Often times, as the market dips there are strong responsive buyers who attack all the selling, overcoming the tide in the mini timeframe and changing the trend. Yes, they choose their levels to act and in this market dominated by thousands of strategies and ten thousands of setups, it is the higher volumes which give conviction to the levels, nothing else.Quite simply put, all levels work, but it is only the volumes which can give confirmation to your levels. For an example, let’s say you are a strong believer in a head n shoulders pattern or even a .61% retracement of a rise/fall. Now as the market arrives at your level, but the volumes do not add up as we get there, what is the kind of impact that level will have?


So instead of tracking all the studies and analysis, we track volume generated off those studies. It’s simple and one study of the market cannot be said to be better than the other, but by studying volumes we stay ahead in the game knowing if the Buyers or sellers are doing things at the chosen points. We may not know what the levels are, but volumes will tell us that the market thinks that the level is important.


On the subject of the various studies and analysis, I wonder how difficult it is for an institution or a group of institutions to code together a pattern like a HnS or an MA crossover or some of the other methods thrown up by traditional technical analysis. These guys spend millions on developing specialized programs, yet they won’t code a TA setup, you and I know of. Why?  There is a story in there. But we will leave it for another Musings post on some other day.


Charts and indicators tell you what has happened in the past. Markets have memory and what has happened in the past is also important, but most traders overlook the “Now”. The “now” is more important than all that has happened in the past. It is what the market is doing now which will alert us whether it will go back to the past or forge a new way for the future. As you and I watch the screen every day, the big guys are also watching the same. What are they monitoring? – Volumes.


We call the “Now” volumes the OrderFlow. It’s broken up into who is lifting the offers( buyers) or pushing the bids ( sellers). We plot them as green or pink on our charts and they will tell us where the control is on the intra-day time frame. This intra-day sphere is where all the retail, pros, institutions come together and exchange trades. You may be a longer term investor and buying or selling once every six months, but you still enter this sphere once and place a trade. The only objective of this sphere is to get an advantageous price regardless of which time frame you trade at. So if you have entered a trade 4 months back and looking to square off today, you are searching for an advantageous exit as is the intra-day trader who opened a position at 9.16 and looking to square off at 9.30 possibly. It’s tricky because different players  with different timeframes are buying/ selling at the same time, the difference in execution often boils down to experience.


I like to think of the Market Place as a chess board. You maybe taking a seat opposite a player who has played the game everyday for the past ten years or even a program. What are your odds of moving to a win where the opposite player is a Pro who maybe can trade at 10 different boards at the same time? Not a lot surely, if you don’t understand all the rules and the game itself.


Yet as the saying goes, “If you can’t beat them, join them”. So through the OrderFlow charts, we track the footprints of these big volume players. As they are wet and fresh, it’s easier to track them and we just follow.


It’s the reason we have Vtrender Premium and the Live charts and the Live community with all of us trading the one common instrument( actually 2 in our case).

So we follow the basics like making a plan etc and then wait for the market to confirm or deny it. We try to see if the locals are controlling the market or the higher time frame. If the local is in control, we let OrdeFlow take us through the trades on intraday. If the Higher time Frame is trading we wait for the correct volumes to enter / exit our trades. The idea with the plan and the trades we take is always of 2 options. You don’t want to get ahead of the market- you want the market to show the way- your job is to follow.We trade the market, not our view of the market.


I’ve enjoyed putting my thoughts down and hope you have had a good read too. There is some more I want to dwell on maybe another post on some other holiday…