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65tf=391_the-volume-wave-revealsprice-directional-secrets-2011-10
e all know stock price action moves in a wave like formation. Much attention is given to
price waves by many technical studies (none more so than Elliot Wave), yet many fail
to apply equal attention to the volume per each wave.
We use our very own RTT VolumeWave indicator to reveal the secrets of price action
relative to volume action per wave. RTT VolumeWave primary function is to assist
with Richard Wyckoff three laws of chart reading.
Quick reminder ..

The Law of Supply and Demand

When there is an excess amount of something (supply) the value of that item is
reduced to draw in the demand needed to absorb that supply. Or, if there is a scarcity of
something, then the value of that item will increase to create the supply that will meet
that demand.
The Law of Cause and Effect
In order for there to be an effect (change in price), there needs to be a cause. The
effect will be in direct proportion to that cause. Best price moves occur when there has
been enough time to allow for a period of accumulation or distribution (or in other
words a cause).
The Law of Effort vs Results
Simply state, if there is an effort, the result must be in proportion to that effort and can
not be separated from it. If it is not, it is an indication of other principles in action.
Think of effort as the volume on a move, and the result is the corresponding price
action. These two should be in harmony. If you have a lot of volume, you should see a
lot of move, if you dontwhy? What is happening? This is where we become the
detective, use our tools, evaluate that price action (result), with the corresponding
volume (effort), and make some deductions based on the balance of probabilities.
As far as we know Richard Wyckoff in the 1930s did not use this type of indicator, then
again he didn't use computers either. But two of the modern day successful students
do. Tim Ord in his book 'The Secret Science of Price and Volume' explains how to review
volume per price wave and when to be bullish or bearish. David Weis the co author of
'Charting the Stock Market, The Wyckoff Method' uses an indicator he calls the 'Weis
Wave' which is a mirror of our RTT VolumeWave.
The RTTVolumeWave secondary function is to help to apply the physics law of force and
motion within stock prices . (Which in our view, is the basis of Wyckoff's three laws).
If there is force there should be a motion:
a) If there is high volume and price move is good then this is equal force to equal
motion: If bullish then this means buyers out number sellers and prices are being
marked up. If bearish then this means sellers out number buyers and prices are being
marked down. In both cases while there is good volume supporting the direction of the

move the price move can be expected to continue.

b) If there is low volume and price move is poor then this is equal force to equal
motion: If bullish then this means there is no demand, if bearish this means there is no
supply. In both cases a price move is in a temporary flux awaiting force to show its
hand in either direction.
c) If there is high volume and price move is poor then this unequal force to motion: If
bullish then this means buyers may not out number sellers and prices may be marked
up poorly or move sideways as the mark up process has been hindered by distribution.
If bearish then this means sellers may not out number buyers and prices may be
marked down poorly or move sideways as the mark down process has been hindered by
accumulation. In both cases the price move is subject to expected reversal.
d) If there is low volume and price move is good then this unequal force to motion: If
bullish then this means buyers out number sellers while prices are being marked up,
but the level of buying interest is poor or without conviction. If bearish then this means
sellers out number buyers while prices are being marked down, but the level of selling
interest is poor or without conviction. In both cases the price move is subject to
expected reversal.
Best by example: Weekly Ford Chart (F). The numbers refer to notations on the chart.
Click for popup. Clear your browser cache if image is not showing.

Note1: When comparisons are made is done on a relative basis to most recent activity.
Note2: We use Richard Wyckoff phase terminology when required.

1) Very bullish mark up phase, both rising volume and rising prices are significant.
2) Minor sell off, still very bullish as sell off volume is not significant.
3) Two advances, the first is not very bullish and ends up being a minor basing re

accumulation period (automatic rally), the second is bullish mark up phase, however
volume support is less than significant and will prove to be bearish. Notice in the
second rally multiple bullish springs. This rally ends with a buying climax.
4) As suspected from (3), a distribution pattern occurs. However it has high volume and
prices do not depreciate much at all and very little price technical damage is done to
the trend, this is very bullish. The sellers are selling, and the buyers are happy to soak
up the volume. Distribution turns into re accumulation. A basing period that can be
expected to be followed by more price appreciation. Note the first bar is a bearish up
thrust.
5) Very bullish mark up phase, both rising volume and rising prices are significant. Take
note the price appreciation and volume significance is the same as (1). Prices do move
under the laws of physics, if there is a force present then there is motion. Expect much
higher prices in the future. This rally ends with a buying climax.
6) Minor sell off, still very bullish as sell off volume is not significant. There is no price
technical damage is done to the trend. Note the first bar is a bearish up thrust.
7) Bullish mark up, however volume support is less than significant and will prove to be
bearish. Comparing volume in (7) to (6) it is actually very poor. This rally ends with a
buying climax.
8) Minor sell off, however this is notching up as more bearish as the sell off volume is
greater than the previous mark up phase at (7). There is no price technical damage is
done to the trend. Note the first bar is a bearish up thrust.
9) Minor rally, on lower volume that (8), (7) and (6), and prices fail to make a new
high. This weakness is very bearish.
10) As suspected from (9) a mark down phase. This time there is price technical
damage is done to the trend. The bearish volume does not surpass the previous two
sell offs, and this is very bullish. Note the first bar is a bearish up thrust.
11) After a minor basing period on low volume, a small advance that results in a sign of
strength (SOS) supported by significant volume. Very Bullish. Note the first bar is a
bullish spring. The technical price trend is beginning to repair.
12) After a two bar sell off (minor test of SOS), a full blown mark up phase out of the
base built up during (11). Rising prices and and rising volume are both significant. Note
the first bar is a bullish spring. You will also note the single bearish up thrust in the
middle of the mark up phase is ignored by the buyers. The rally ends with a buying
climax.
13) Something happened, and event maybe, as significant volume and price mark down
proved to be very bearish. This time there is significant price technical damage is done
to the trend.
14) A short bounce on weak volume is very bearish

15) Two periods of price depreciation on significant volume is very bearish. Only broken
up by short term price bounces on poor volume, which is bearish. Note in at the start of
the move multiple bearish up thrusts.
16) Price moves sideways on less selling volume, as selling expires, this is very bullish.
Note within in this sell off action a bullish spring at the start that shows a line drawn in
the sand by the buyers.
More detail can be found here: RTTVolumeWave

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Investing Quote...

.."There is a time for all things, but I didnt know it. And that is
precisely what beats so many men in Wall Street who are very
far from being in the main sucker class. There is the plain fool,
who does the wrong thing at all times everywhere, but there is
the Wall Street fool, who thinks he must trade all the time. Not
many can always have adequate reasons for buying and selling
stocks daily or sufficient knowledge to make his play an
intelligent play."...
Jesse Livermore
..How many millionaires do you know who have become
wealthy by investing in savings accounts?..
Robert G Allen
..Because of the extreme challenge, one must commit full
attention to it. Market speculation is no different than trying
to be a successful doctor or lawyer you simply must devote
yourself full-time to the study of your craft...
Bernard Baruch
..If its obvious, its obviously wrong...

Joe Granville
.."It's not whether you're right or wrong that's important, but
how much money you make when you're right and how much
you lose when you're wrong"..
George Soros
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