When Price and Volume Disagree, Part Four


Part three was kind of a monster. I had a feeling it might be. But, you know, I am just doing what I am doing and sharing it with you. I’m the kind of hombre who likes to do his own research, and for better or worse, I have little respect for conventional wisdom. Unless, of course, it really is wise. More often than not, I’ve found, it’s anything but.

More important, trading is my craft and my profession. So I am perpetually going to try to become the best craftsman I can be. That’s just how I roll. Sometimes that means digging really deep into the minutia.

I don’t care if something is supposed to be done a certain way because, well, that’s just how it’s done. I only care about whether it really works or not. Even if it means openly challenging the status quo when I have good cause and have enough evidence to reasonably back my claims up. I think one should never be afraid to mix it up a bit for fear of… whatever.

Speaking of mixing it up, some time ago I had an idea. After I had been using the Acme Volume Breakdown for a while, pretty successfully I might add, I started to notice something:

On occasion, volume leads price.

Let that soak in a second. Here, let me try one more time. On occasion, volume leads price

I know what you are saying to your screen right now: What. The. Hell?

No, it’s true. Sometimes, the Acme Volume Breakdown reverses direction before price itself. Most of the time, it’s only by one, two or maybe three bars. So I thought, why not use fractals to mark the the AVB turns? So I did.

Don’t believe it that it’s true (not that I used fractals… that the Acme Volume Breakdown reversals can lead price)?

If a picture is worth 1000 words, I am going to shut my pie hole and let the pictures say the rest. As usual, they are all large screen shots. You can download them and pixel peep all you want.

Here we see this situation several times during the August 16, 2011 ES RTH session:

Acme Volume Breakdown - Example 01

… another 4 times during the August 19, 2011 ES RTH session:

Acme Volume Breakdown - Example 02

… and a few more times during the August 30, 2011 ES RTH session:

Acme Volume Breakdown - Example 03

So, again, whether you let the Acme Volume Breakdown (Deluxe Edition) fractals do the marking for you or you mark the peaks and valleys yourself, don’t ignore what volume is trying to tell you about the truthiness of the price action.

Trade ’em well, amigos.

NOTE: Want the back story? You can find the whole series here.


UPDATE: Understand that this is not a holy grail nor is this pattern the kind of thing that you can base a mechanical system on. Don’t try to catch every price swing based on fractals or anything else. That’s just a recipe for going broke.

Also, depending on your chart type and time frame, on occasion you will see “fractal shifts” when loading real-time vs historical data. These differences are a lot like rounding errors in decimal numbers, and are an artifact of how all charting software works. In fact, if you look at two 5 minute charts from 2 different platforms the candles will look a little different. But I digress…

When you do see the patterns above occurring, they ought to be considered confirmation only, not a call to any action. And certainly only pay attention when you are looking at real-time data. Besides, you can’t trade in the past anyway. Unless you have a time machine. If you do, please let me know. I want to invest.

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