Volume analysis

How to receive advantages

in trading

New 3D approach in analysis price behavior

Based on Volfix.net trading platform

Starkoff Andrew

2017
dedicated to my mother, who always saw me as a
scientist

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Table of content
What is this book about……………………………………………………………………..…1

Chapter 1. Multidimensional overview of bars. Two-dimensional, three-dimensional

and four-dimensional model of displaying the price chart …………………………………...5

Chapter 2. The logic of the price movement and horizontal levels………………………….13

Chapter 3 Analysis of indicators of volume bars BID, ASK and Delta……………………..20

Chapter 4. Big and small players. Significant volumes in clusters…………………………..30

Chapter 5. Leading and leaded……………………………………………………………….38

Chapter 6. Volume identification and price movement scenarios…………………………....45

Chapter 7. How to trade on FOREX using real volumes…………………………………….55

Chapter 8. Investments, fundamental data and volume………………………………………63

Chapter 9. Combination of technical and volumetric analysys………………………………73

Chapter 10. Intuitive and algorithmic trading. Using probability…………………………….83

Chapter 11. How to calculate a formalized strategy…………………………………………..93

Chapter 12. How to effectively use information during trading………………………………97

Chapter 13 Conclusion……………………………………………………………………….108

Acknowledgments…………………………………………………………………………….112

Trading glossary……………………………………………………………………………....113

Contacts……………………………………………………………………………………....119
Disclaimer Futures, stocks, and spot currency trading have large potential rewards,
but also large potential risk. You must be aware of the risks and be willing to
accept them in order to trade in the futures, stocks, and forex markets. Never trade
with money you can't afford to lose. This publication is neither a solicitation nor an
offer to Buy/Sell futures, stocks or forex. The information is for educational
purposes only. No representation is being made that any account will or is likely to
achieve profits or losses similar to those discussed in this publication. Past
performance of indicators or methodology are not necessarily indicative of future
results. The advice and strategies contained in this publication may not be suitable
for your situation. You should consult with a professional, where appropriate. The
author shall not be liable for any loss of profit, or any other commercial damages
including, but not limited to special, incidental, consequential, or other damages.

All rights reserved. No part of these pages, either text or image may be used for
any purpose other than personal use. Therefore, reproduction, modification, storage
in a retrieval system or retransmission, in any form or by any means, electronic,
mechanical or otherwise, for reasons other than personal use, is strictly prohibited
without prior written permission.
 Volume analysis Starkoff Andrew

What is this book about?

If you like trading, then you probably met a lot of textbooks, articles and
video lessons, each of which tells about certain methods of trading on the stock
exchange. But if you start to study them more deeply, then, most likely, you will
pay attention to the great subjectivity of the actions being interpreted. In one
example we buy, because the price formed a "triangle", another author's
recommendation to sell is just for the same reason. Many of the authors are in fact
very good traders, but they can not always get across the actual situation on the
market, because the transmitted data is very scarce because of the way they are
rendered. For example, prices are displayed by linear bars or Japanese candles,
besides, a set of standard and exotic indicators can not always communicate the
idea the author actually has. It is difficult to understand what actually happened or
is happening in the market in these simple dashes and lines.
The exchange takes its origins from the spontaneous markets - the same ones
on which vegetables and fruits are sold. Imagine that every purchase in this market
would be displayed on a certain scoreboard. Here someone bought a kilogram of
cucumbers for $ 2 - and this information was seen on the screen. How will others
perceive it? Absolutely differently. Some sellers who want to sell their goods faster
will lower the price in the hope that their goods will be sold out. Others will make
it more expensive with an eye to situation when there are no cheap cucumbers in
the market and the buyer will be forced to buy at a higher price. And now, imagine
quotations in dynamics - trades on cucumbers: $ 2.0, $ 2.2, $ 2.1, $ 1.9, $ 1.8.
What price is fair, because it is constantly changing? If you came to buy
cucumbers, you would certainly wait until the price goes down even more, because
you think it's fair to buy at $ 2.0. But how would your opinion change if the
volume was added on the scoreboard: 20 kg was sold at $ 2.0, 350 kg - at $ 2.2,
250 kg was bought at $ 2.1, 7 kg was sold at a price of 1.9 $, 1 kg sold for $ 1.9
and 1 kg - at $ 1.8. Would you expect further price reductions? Do you consider
that the price of $ 2.0 is fair, having information about the volume? After all, the
main sales were at $ 2.1 and $ 2.2 per kilogram. Some would be suspicious of the
understated price: maybe there's something wrong with these cucumbers?!
On the exchange, for some reason, we do not use this simple everyday logic.
We believe that if the price is in the current moment, then it is fair, and all
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indicators will point at this, because, more often than not, they are sharpened for
the price. But on the stock exchange, just like in the market, there are always
additional conditions: someone is in a hurry, someone is mistaken, someone is too
optimistic, and someone urgently needs money, and he is selling everything. The
main function of the exchange is not to entertain players with price movement, but
to set up real sellers with buyers. If an oil company reduces its oil prices, it's not
because stochastic or RSI indicators show it, but because there may have been
leftovers that no one buys, and now there is a new supply. But when we look at the
chart, we do not think about it. Why? Because the lion's share of all the books on
trading shifts the emphasis from the actual action to the consequence. The price
has declined because the company's expectations of profits do not match the actual
expectations, because the board of directors approved lower dividends, because the
US fleet is approaching North Korea, because the price crossed the moving
average over 200 periods - maybe all together, or, may be,nothing out of this. So
what should we pay attention to?
In this book, I will show a slightly different interpretation of the mechanism
of the functioning of market processes, paying much attention precisely to the
volume in conjunction with the reaction of the price, and not price per se. When I
see large volumes that are much larger than the previous ones, I pay attention to it -
just like sellers in the market who have a few kilograms of cucumbers in stock pay
attention when a truck with cucumbers arrives on the market or the next store of a
large trading network such as Auchan or Wal-Mart puts up an action offer for
cucumbers at a price of $ 0.99. This should be noticed both by buyers and sellers.
Sellers of cucumbers are forced to reduce their prices if they have a lot of goods. A
large player by his presence immediately affects the course of trading. It's clear,
because the buyer does not want to buy cucumbers for $ 2, if he knows that they
are sold at $ 0.99 nearby. But if one of the small shops puts this product at that
price, the cucumbers will be quickly sold out, and other sellers don't need to reduce
the price. Knowing this, they will be calm. Therefore, not the price affects the
participants, but the demand and supply of large players.
Most trading terminals show volume only in the form of a histogram at the
bottom of the graph for a certain time (5 minutes, 30 minutes, etc.), but does not
show at what price the largest turnover was. However this is important! Imagine
the following situation: next to a large store there is a large manufacturer of food
semi-finished products, and suddenly it turns out that his raw materials are not
suitable for production. He urgently needs to buy 10 tons of cucumbers. He can
come to the manager of a large store and buy up everything that is there, at a price

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of $ 0.99. If this is not enough, he can also buy all the cucumbers in small shops,
and far-seeing sellers can put the price higher.
As a result, this large manufacturer can buy, for example, 5 tons at a price of
$ 0.99, 10 kg for $ 1.5, 10 kg at $ 2.0, 10 kg for $ 3.0, 5 kg at a price of 5$ and 3
kg at $ 7.0. On the bar graph, we see a significant price increase from 0.99 to 7.0 $
and volumes of more than 5 tons. On a volumetric chart, in addition to price
growth, we will see that the bulk of the volume went at a price of $ 0.99. At what
price to sell or buy the next day? If a major producer needs the products the next
day, he will continue to buy at high prices, and we will immediately see it through
volume, but if he refocuses his production on other products and will no longer buy
in the market, then the next day sellers who will put their goods at a price $ 7, will
reduce prices, since no one will buy at such a price. Single purchases, which will
take place at prices of $ 7, 6 and $ 5, will give us information that these are rare
purchases of people who do not look at prices at all. Professional market
participants - specialists, market makers, brokerage and investment houses - have
an advantage over ordinary traders: they are the first to learn that someone has
something missing or there is an excess, because the first trades begin to occur
with their participation. But now, when we can see the volume through prices - we
can also identify a major player, even after the fact.
The main purpose of this book is to show how you can get such a big
advantage as identifying large market participants. You can detect their tracks
through the volumes and accumulations in clusters, as well as anticipate their
actions by the reaction of the price to these volumes. Do not draw a lot of different
geometric shapes, do not look at the indicators - it's important to find out by
statistical method what volumes are usual, which ones are large and which ones are
super large, and look at the reaction of the price to large and extra large volumes.
When I first realized this, I did not use it. I thought it was too simple, and the
market is much more complicated. I tried to understand the movement through
indicators and price-action, tried to complicate the process, although it had to be
simplified. It took me a lot of time and effort to get to the understanding that you
should not guess the direction, not rely on indicators, but that the most important
data is the volume and the reaction of the price to it, which give much more
understanding about possible scenarios of the price behavior. It's like to compare
kung fu and classic boxing: in Chinese kung fu there can be more than 2 thousand
different moves, while in boxing - there're only 3 punches and several of their
variations. Nevertheless, the average boxer will most often defeat the average kung
fu master, since he will not overthink: the boxer knows that he can hit in the head

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effectively and he knows how to do it. After all, 5 years of working out 3 punches
is much more effective than 10 years of working out a thousand moves.
The information you will learn from this book may not be new to you. But I
tried not only to tell that the volumes work, but to classify how and where exactly
this happens, and where they do not work and why. I want to share my experience
based on volume analysis, and I hope that this information will be useful not only
for general education and training, but can bring you some kind of material bonus.
Ultimately, our profession is very indicative: we either earn on the exchange, or do
not do it.

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 Volume analysis Starkoff Andrew

Chapter 1. Multidimensional overview of bars. Two-dimensional, three-

dimensional and four-dimensional model of displaying the price chart

Most traders analyze the incoming information from the exchanges on the
basis of output data in the form of bars or Japanese candlesticks. Certainly, this
model shows much more information than just sliding closing prices line or
columns of numbers. Taking the basis of construction of data output there are so
many books which treat prices' behavior, through the patterns of bars’ construction
or candlesticks. Many of the patterns have romantic names: "morning star",
"evening star", "hammer", etc. In some cases, they really work well. If you had
more detailed study of these works, you probably noticed that some patterns were
built on logic and there was a high probability of working off the projected
scenario. However the world does not stand still, and there are entire books
devoted to the analysis of these common factors. They lose their weight gaining
more popularity. Many algorithmic programs are based on countering the most
popular ideas. It is obvious. If the method is quite common and many are
beginning to use it - it loses its effectiveness. There are new methods of analysis
and trading strategies on their basics.

The same applies to other popular methods and patterns. Many traders know
that after a "bearish engulfing" they need to sell, and they do sell; certainly there
are market makers or the big players that can withstand the crowd and redeem
these sales causing a rise in prices. They, too, know these foundations and if they
are confident in their abilities and have the necessary means - they can compete
with the crowd. Often crowd goes wrong.

Let’s go back to our subject. Using a two-dimensional model of construction

of the bar, or a combination of bars, we see information, which also the majority of
traders see, and there is no any significant advantages. We can gain an advantage
only when we can find / see / get more information, which others do not possess.
For example, how it can change our minds, when we add the volume in this

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Fig. 1.1. Bar image of SPY ticker (day timeframe)

formation? Let's look at some examples. Let us consider fig. 1.1. A classic example
of an image of the daily SPY ticker bar ( SPDR S&P 500). We see the opening,
closing, maximum price movement up and down, as well as a bar graph of the
volume at the bottom. Without additional context, when we cannot see the
previous bars and the dynamics of trading - we have little to say. Only the fact that
the price has clearly fallen.

But if we take a look at the cluster graph (Fig 1.2), then we can see additional
information in the same view (1 bar), namely:
- trading volume in each cluster;
- zone of the maximum volume accumulation;
- maximum volume accumulation within a bar (VPOC);

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And we can conclude that volume has been accumulated in the middle of the
bar and the price bounced from it. It is logical to conclude that, despite the fall,
buyers partially stopped it in the lower and middle parts.

Fig. 1.2. Volumetric 3d bar of SPY ticker (daily graph)

Fig. 1.3. 4d bar with delta value displaying (on the left side), and the volume on the right
side. SPY ticker - daily chart.

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But this is not all information that we can see. Many platforms allow you to
see more data (see figure 1.3.)
- on the left side we have Delta graph (the difference between the BID and ASK)
- we see the value of the Delta in each cluster - positive or negative;
- we can see at what price there was the most positive and most negative delta;
- we can see the total Bid and the total Ask for histograms below and understand
who won the round.

If the first classic-style bar, we could not understand what was going on,
except that there was a fall. In the second volumetric 3d bar, we saw that the fall
has been stopped. In the third 4d bar, we saw that the price was not only stopped,
but buyers were much more aggressive than sellers.

Let's analyze several other patterns and see what information we can get by
examining these bars. Let us consider a combination of several bars and
ratiocinate. As an example, we will analyze the daily bars of the Google Company
(GOOG). For a start take a look at classic bars (fig. 1.4.)

Fig. 1.4. Chart of Google stock, daily timeframe.

Figure 1

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Fig. 1.5 The daily chart of Google (GOOG), classic bars.

On this chart we see a strong upward movement and a certain amount of

uncertainty at the top. But so far it’s not yet clear for us. Let's take a closer look at
the picture from 28/07/16 to 08/11/2016. Fig.1.5. Has it become better understood
what was happening in the market?

For me it hasn’t. Having a long position in shares, or plans on short positions

at this time – it's not exactly an easy choice to make it. The trend is still growing
and is strong enough, there are no big preconditions for sale. Most indicators will
show the purchase. Why to worry? Now let's look at the same picture through
volumetric bars. Fig. 1.6.

The first thing that catches the eye is negative delta over the past three days
(see lower histograms). Delta is the difference between Bid and Ask: if Ask is more
than Bid, we see a positive delta; If Bid is more than Ask - we see a negative delta.
The numbers in the histogram mean the value for Bid’s to Ask’s in a given day. In
such a way, for us, it may already be a signal for the market reversal. Let’s argue
with logic on.

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Fig. 1.6. The daily Google chart (GOOG), volumetric bars

Price has twice updated the new peak, but after the update it came back to
the current level. Over a local peak there were no significant volumes, and if there
were no volumes - it means that there were no aggressive buyers, just some pulse
movements. Then we look at the daily accumulation of volumes. They are under
the control of the sellers. How can I see it? I can see that on August 9 buyers were
unable to push price higher than volumes accumulations, but on 11 August sellers
pushed price lower than the overall accumulation volume.

In these examples, we do not even consider any kind of analysis or methods

of market perception. We simply observe the behavior of the price on the basis of
the actual display of bars and logically assume some scenarios. Looking at the
classic bars, my confidence in the turn of the market has been about 52% against
48% in favor of a market reversal. From the height of my experience, I also see a
decrease in volatility, false breakouts of the local ‘high’, some uncertainty at the
top. However, I am not quite sure that it would be a reverse. 2% is too little
advantage of the moment to take some active action, but rather a prerequisite to
action. But when I look at the volume graph I immediately notice sellers’ pressure

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intensifying. I notice not by my intuition or experience. I can see that because

actual figures indicate me on this. I can see a negative delta and see how the price
absorbing volume accumulation field; as well as I can see, that buyers take no
action. I also see that the next level of support is lower, and I understand that there
is a high probability of returning to it. In this case, I have confidence of 60% to
40% that the correction would be. And this is a significant shift towards sales. And
if I have certain expectations based on market analysis, I'll already be
implementing them without waiting for additional confirmation in the form of a
fall the next day.

This information gives me a big advantage over others. And if I do not wait
for the development of the market and confirmation of the observations from other
market participants, based on the classical analysis of bar charts - I may have more
advantageous position, bigger profits and the likelihood of success, not losses. All
this together can give me a significant advantage, even if I'm wrong in some cases
without waiting for confirmation acting much more aggressive. If you look at the
history of events, you'll see that our arguments were correct and the price adjusted.
In the history you can always find a lot of examples that can confirm or contradict
the theory. I'm not trying to convince you that this is the only correct method of
analysis; I just want to inform you that having more correct data in compressed
form; you will have an advantage over those who do not have it. Many “old
school” traders are used to using classic bars and skeptically watching new trends,
but as time goes by, youngsters gain experience and get to windward of them. It
reminds me, when sat nav only began appearing, showing traffic jams and how to
take a detour them. Many untrained drivers immediately began to use them.
Experienced taxi drivers looked at it grinningly. But sooner they also appreciated
the benefits of GPS.

Science is not in place. Mathematicians have an n-dimensional space model.

I’ve always found it hard to understand how to observe multidimensional space.
But it turns out 4 dimensional measurement can already be presented. Either
showing the level of traffic congestion with the designation of “road under repair”,
or in bars where there is Volume, Bid and Ask, besides price marking. And I think
it does not look bad without overloading a brain with unnecessary information.

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CONCLUSION. Thus, the trader, who will analyze the bars in terms of multi-
dimensional image of the results of the price movement (which in addition to the
price may include: volumes, Bid, Ask, Delta, Delta in%, number of trades,
cumulative data), will have a definite advantage over those who will simply
analyze the graph only on the basis of price data. At first glance, multivariate
projection looks very hard and it is not clear. It seems that this may confuse you
even more. But in fact this is just the information that you can use at your own
discretion just once glancing at the monitor screen. Think of yourself when you
first looked at the bar or candlestick chart. Especially, if there were some other
indicators. Sticks, lines, numbers - clear nothing, but fascinating and interesting.
Have you already dealed with it? Likewise, you will easily grasp the volumetric
analysis. The benefits that you will have analyzing the multidimensional
volumetric bars certainly will be higher with gaining experience in trading and
analysis. In this book I will try to give you as much as possible of structured
information that can be used. My information is based on logic and observation. I
DON’T pretend to have the “only true” information about the market. By no
means! However it's not just a theory or reasoning. I am a practicing trader, and
many of these laws still bring profits. Why do I unlock these secrets for you?
Sooner or later you will find them out by your own. This technique is significantly
“gaining momentum”. Let it be me who first introduced you with this knowledge
and it will be my contribution.

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Chapter 2. The logic of the price movement and horizontal levels

Any analysis that is done on the stock exchange has a goal to predict the behavior
of the price with a certain probability - its direction, the next support and resistance
levels. In order to predict the movement of the price you have to understand how
this price moves. I think I won't reveal a big secret if I say that the price is moving
in waves. At the time, Elliott developed his theory of waves, upon which many
traders are still doing their business. In this theory, I do not really like too
subjective opinion, and the fact that any development of waves can be explained
by hindsight. However, the very idea of the wave development is correct. Prices
generally move in waves - they are rising and falling in waves. The more liquid the
instrument is, the smoother and undulating it moves. But how to understand where
there may be top or bottom of the wave? Surely there are some conditions that
cause roll back from the tops or bottoms. These conditions are the counter market
participants. Newton's Third Law states that any action always has its reaction. The
price moves up until it causes resistance from the other bidders. In this way, the top
or bottom of the wave is formed.

Nevertheless, where does counteracting of the other participants become

strong enough? We all look at the charts and note some possible reversal of wave
motion or support and resistance levels. When we have identified such level
correctly, then upon achieving by price, it may cause backlash. Then by reaction
force to this level we can tell whether there’s the likely continuation of the current
movement (level breakdown), or price correction (level rebound). In theory,
everything is very simple. In practice it is always much more difficult. When I first
encountered this, I could not figure out how to identify these levels. And even if
you have correctly identified them, how to understand whether they really can
move round the price? And what is considered to be breakdown or rebound from
the level? Any experienced trader probably asked himself these questions.

In classical analysis there are several theories of how to build horizontal levels:
below or above the opening / closing of bars; under or over their tails; at your own
discretion. There’s no clear unambiguous answer. In volumetric analysis, there are
also several approaches to build levels, but the logic of their building is subjective:

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1) The first approach is based on the logic of the balance border. Notice the
next figure (2.1), let us together find some balance borders in it. We can
display them with different colors, provided they are much larger than the
other.
2) The second approach is based on the classical theory of 70% of TPO volume
(Time price Opportunity). It is used a lot by traders and bots, therefore quite
often these levels are good for rebound.
3) Levels of maximum accumulation for the selected period. This may be the
levels of 1 day, 1 week, 1 month, year, and so on. These levels are also
important for many traders.

Fig. 2.1. Levels on the volumes graph with the designation of the market profile on the left side.
White arrows indicate the main accumulation area. Chart - mini S & P 500; ticker - ES 15 min.

Let's look at some examples of how you can set the levels on the volume bars (fig.
2.1). White circles indicate significant accumulation zones. When the next time the
price approaches this volume, we’ll have a high probability of rebound from this

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level. Also on the volumetric graph you have additional proof of your guesses
based on the formation of the profile of the volume on the left side of the chart. As
you can see, the local accumulation of volumes and savings borders are the
superior support and resistance levels for price movements. And here it does not
matter what kind of timeframe we are considering: daily, hourly or minute charts.
Current accumulation profile will always show the main zones of volumes’
accumulation. But why can borders of balance area act as such levels? One reason
may be that the on the super liquid instruments (namely, such is the futures
contract mini S & P) the majority of transactions within the day are carried out by
trading robots (bots). Algorithms of these bots are sharpened on search inefficiency
in the market, but very often formulas of such robots may have quite the same
algorithm.

Fig. 2.2 The volume bar graph, the 15-minute timeframe, the futures contract mini S & P with level
designation. (ES, CME). Note the local accumulation zones (indicated by white circles) and reaction of
price approaching at next approach.

Moreover, very often these robots operate within certain ranges. Correspondingly
they often react similarly to certain patterns. The price went up to a certain price

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and rebounded from it. At next approach a lot of players expect rebound from this
price and open positions in the opposite direction; and if their power is stronger,
the price is turned to the next level. At the next level once again the fight starts,
and the stronger party moves price in its direction. Everything is quite logical and
understandable. Up and down price movement occurs in waves. In this way within
these ranges a certain accumulation of volumes creates; and on the left side of the
market the profile emerges. But then price approaches one of the levels and breaks
it through, continuying to move in its direction. Correspondingly, most bots and
activ traders can change their orientation and begin to work in the following range,
thus creating a new accumulation of volumes in the new range. Can we know
exactly whether the level price will break the level or rebound it? Of course, not.
However we can assume some scenarios of breakdown or rebound with some
probability. The question is, whether this probability is better than 50/50?! In order
to predict such probability experienced traders look for the price behavior and its
reaction. The response of price to the level often gives them a more accurate
forecast. But this requires quite a lot of experience. However it does not always
help. Our brain sometimes pulls tricks. So often we see what we want to see, rather
than what it actually is (this concept is well described in the book of Mark Douglas
“Trading in the zone”). We need a more accurate indicator that the price broke or
bounced from the level. These indicators exist in volumetric analysis. If you base
only on the price reactions, sometimes it may be not very relevant, because when
we definitely find out who won, the price may already have greatly deviated from
this level. And it will be too late to enter the position. We need to know who has
the advantage in the battle near the level. In volume chart for this purpose you can
take the following Information:

1) The activity of aggressive buyers or sellers. When the price approaches the
resistance level, the "bulls" are trying to break it through, and raise the price
above. "Bears" are trying to enter from this level in the short position with
the expectation that the price will return to the balance area. Let's look at
Fig. 2.3. In this case, we can see how, while breaking thru aggressiveness of
sellers dropped sharply compared with the previous bar, otherwise it has
slightly decreased, but not increased enough for breakdown. This may be a
good sign that the level will be withheld.

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2) The second important factor is where the main volumes of the cluster are
directly placed. Under the resistance level or above it. If basic volume of the
accumulation is under the resistance level (above the support level while
reducing price), then there’s a high probability of rebound from this level,
despite the fact that the technical level can be breached (the price can update
the new High / Low or make a sharp squeeze of breakdown). The thing is
that, once a considerable volume below the resistance level is formed -
hence buyers protect it more aggressively. They believe that this level is
good for sales. If the volume is formed above the resistance level, this means
that despite the fact that the price came out from its balance area and at the
current value it is at some local top, a lot of aggressive buyers believe that it
can go even higher, therefore they are buying on the very top or above.
Conversely, for the support levels: if the volume is formed below the support
level it means that aggressive sellers are willing to push the price even
lower.

Fig. 2.3. 15-minute volume chart of the mini S & P contract (ES, CME). Please note, that when the
price approaches level of resistance, the “bulls’ aggression” decreases, which indicates the
weakness of the “bulls” when approaching the level.
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Please note – no telling fortunes in a teacup, no bearing on the experience or

opinion (which can always be wrong), no doubt about occurring moment. But only
the values of the numbers. If buyers are more aggressive - the value of aggressive
purchases will be higher. If the primary volume is formed under the resistance
level, it is more likely to be rebound. Everything is transparent and clear, and there
can be no other opinion. Because you always know that a single digit can be larger
than the other. Of course, this does not work with 100% accuracy, but the
probability of success in this analysis is sufficiently bigger and can reach 70-80%
depending on the tool. It's easier to draw conclusions, and you free your mind from
mental load every minute to make decisions. With some statistics you can still
improve your chances. When I talk about statistics, I do not mean complicated
mathematical formulas or selections for decades. You only need to determine the
size of the local volume of the cluster, which is critical for this tool. If this critical
volume appears above the resistance level – there’s a high probability of
breakdown. If the volume above resistance level in clusters is more or less
standard, so there’re few people willing to buy above it.

Fig. 2.4. The daily chart min S&P, volume bars. (ES, CME). Notice how the price reacted to the
maximum accumulation level. Technically, it has broken it through, but the lack of volumes is a
sure sign of lack of aggressive buyers.
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Note the previous example (fig. 2.4.) Contract price of mini S & P reached
an important resistance level - the maximum accumulation of six months. And
despite the fact that the actual level has been broken, we see that the main
accumulation area was on the bottom. Above the level there were no significant
volumes, and hence according to our logic there were few buyers and the price
came back to the previous accumulation zone.

Conclusion: it does not mean that the price will always act according to this
scenario. Every moment in the market is unique. However if you understand the
logic of price movement through the actions of buyers and sellers - you more likely
will predict the correct price movement scenarios. Drawing attention to the
accumulation volumes, support and resistance levels, as well as the aggressiveness
of buyers and sellers - you'll be much more knowledgeable than those traders who
base their conclusions only on bar or on the candle chart. You do not need to guess
or think how the price can go. It takes a lot of mental energy and makes you
dependent on your decision. You need only build a certain scenario, the algorithm.
For example: if we have a level of resistance and the main volume is significant
and was formed above the level – there’s nothing to guess, the level is broken
through. Even more precisely, with the volume in clusters of over 10 000 contracts
above the resistance level - the level is considered to be broken through. After all,
it is an objective observation, and it has only two answers: “yes” or “no”. That
greatly simplifies the decision process. Unlike technical analysis, where there are
about 20 "exact" and 40 "almost exact" reversal patterns and about a couple of
hundred of their combinations; you do not need to invent anything. If above 10,000
- broken, no - rebound. When you use a simplified view on the market, you will
have more energy and time to spend on other resources. Indeed, in this case, you
can put the level alert or the volume alert, and be engaged in other work without
waiting for the formation of the "Three ascending samurais" or "The head and
shoulders". Moreover, you can automate the process by using trading robots.

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Chapter 3 Analysis of indicators of volume bars BID, ASK and Delta

Many of the programs running on the volumetric analysis, show different values:
volume, ticks, BID, ASK, DELTA (difference between the BID and ASK), but not
every trader is able to correctly analyze this data. In this chapter we will deal in
detail with the data and tell you about the most common misconceptions.

First I want to say that there is accurate data, which is transmitted to the
terminals from exchanges, and the calculated data. The original data is the same
everywhere: at any terminal and any broker. The difference is only in the form of
the broadcast speed and visual displaying. The exact data is:

- price position at a certain point in time for a given instrument. This means that if
on August 11, 2015 at 14:00 at the New York time Google share was traded at the
price 785,21 USD, then such kind of information must be at all correct terminals
and all brokers;

- volume for the selected period, the selected tool. It must match both in clusters,
and in the volume histogram;

- open interest (in some exchanges it's traded in real time);

- the number of trades for the selected period;

- other data (such as the settlement price at the time of clearing in futures, price in
premarket trading and postmarket for shares, etc.)

But there are estimates that may differ from each other in different trading
terminals. They differ not because someone deliberately demonstrates incorrect
information, but also because there are different ways of displaying information.

Opening and closing. In some cases, sometimes before or at the opening there is a
kind of trade far beyond the current price, and a split second before or at the
opening the price returns to the standard data. This often happens in illiquid
instruments and shares. Also, there are bids in premarket and postmarket trading,

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the price of which may differ significantly from trading throughout the day. Note
the Figure 3.1.

On the bar chart we can see the opening, closing and the maximum price at the top
and bottom. It’s nothing strange. But if we look at the volume chart (Figure 3.2.),
then we see that at the top there were several trades with a small volume,
significantly higher than the opening and the trading range. Why it happened and
who did it is not quite important for us. But it was listed on the stock exchange,
and accordingly is in the data stream, as well as the terminals. This price is taken
into account during the construction of the daily bar.

Fig. 3.1. Bars daily chart of the Alcoa company (AA Ticker, NYSE) for 16/02/2017

Hidden trades, premarket and postmarket trades, trades that have occurred in the
non-trading session may also differ in both different trading terminals. And here is
likely to be issue of settings and data output. Many brokers and software
developers, having the same data provider, may just not display this information or
hide it (for example, displaying data of only substantive session).

BID, ASK and accordingly DELTA (difference between the BID and ASK).
Some mistakenly believe that the data of BID and ASK are the true values. In such
a way, if the terminal shows that at any given time there were 130 Bid x 200 Ask

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(130 Bid contracts against 200 Ask contracts), the buyers were significantly more
than the sellers, and the price would surely to grow. But it is not so. On the market
at the time of the trade there is always a buyer and seller. If there’s no one of the
sides, then the trade will not take place. Number of purchases is always exactly
equal to the number of sales. So when you see the value 130 Bid in the cluster - it
only means that the buyers were "conditionally" more aggressive than sellers, or
we can say that buyers "conditionally" were the initiators of the trade. As we
understand, there were also sellers during these trades, since it took place.

Fig. 3.2. Volumetric daily chart of the Alcoa company (AA Ticker NYSE) for 16/02/2017. Notice, only
top 1000 lots have just passed; the opening and the main trading began significantly lower.

I'm writing a "conditional" word in quotation marks because the data is in doubt.
The fact is that the stock exchange is not broadcasting who was the initiator of the
trade or who was more aggressive at the moment. Exchange broadcasts quotations
and deal flow. Some advanced trading terminals calculate the trading data and the
price, and output the final result according to some formula. For example, in the
Volfix program there are 2 calculation values of BID and ASK:

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a. The first is called Tick Direct. The formula logic is based on the price
value of the next tick in relation to the previous one. That is, if the stock
or futures were traded at the price of 100.00 dollars, and the next tick has
passed with the number of 2000 lots at the price of 100.01 - then such a
formula will show you the value of 2000 BID x ASK 0. This does not
mean that buyers bought more than sellers sold; it simply means that, as
the price rose at the moment compared to the previous trade, then the
trade is displayed as "buy". Conversely, the trade on the tick below the
current price will be displayed as a "sale".
b. The second “aggressive” option is used by the following formula. If
there was a limit order to sell at 100.01, and someone hit it with market
order (that is, he put a market order to buy at any price), or put a limit
order to buy at the price of 100.01, then in such a way, the terminal will
show "buy". And vice versa. If there is a limit order at the price of
100.00 and someone decided to sell at this price, he places his bid at the
price of 100.00 or less; thus the terminal will display this order as a
"sale".
c. There are also other Bid mapping algorithms, offer and respectively, the
difference between them - Delta.

"Buy" and "sell" are rather conventional in this mapping. It happens in a

moment that the price shows 100.01 for buy and 100.03 for sale. There are no bids
at 100.02; then someone decides to place a bid for sale at the price of 100.02, and
at the same time someone decides to buy this tool at the price of 100.02. In this
case, the purchase bid was put faster, and the sale has been made on it. Then one
method (Tick Direct) will show the Buy as the price moved up by 1 tick, and the
other method (Aggressive) will show the Sale as the sale bid has been issued
through the previously exposed bid to buy. Now imagine hundreds of such bids
and trades per second on a liquid instruments, while the price may even not move.
Therefore, we call such data “conditional”, because it can be interpreted in
different ways.

You need to treat the Delta, Bid and Ask as a certain mood of the crowd. It
so happens that these values do suggest certain trends. But it happens also that with
too high negative impact the price does exactly the opposite movement. Experts

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play against the crowd, and they intercept the initiative. Moving against the crowd
is dangerous, but the crowd is often wrong. Then I'll show you a few interesting
examples of how you can use the values of Delta, Bid and Ask. You have to
ratiocinate and do a general analysis of the market, but not just rely on this
indicator. Note the Fig. 3.3. In this picture we see the daily charts of the
Euro/Dollar futures on the Chicago Mercantile Exchange (ticker 6E). On this chart
we can see a few examples when during the day some forces prevail (“bears’
mood”), but at the same time the price is increasing. It can be used as the
divergence between the mood of the crowd and the tool movement. On this day, if
you were selling, you would get a loss. But the next day there was a great
opportunity to sell. Specialists sometimes move the market, but they can not
always keep the crowd. The values of Delta, Bid and Ask should be considered
only in conjunction with other factors, and never alone. If you have defined some
possible resistance levels and the price, which went up to these levels, forms a kind
of reversal pattern; while Delta, Bid and Ask show that buyers do not show much
activity - then this is an extra hint for you.

Fig. 3.3. Volumetric daily chart of the Euro/Dollar futures (Ticker 6e, CME). Pay attention to the
divergence between price growth and negative delta, and the reaction the next day.

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If you just look at the values of Delta, Bid and Ask without reference to the context
- you can get into a situation where the crowd is not right for a sufficiently large
period. Experts and large players can use many levers of influence on the price and
hedge their risks with other tools: options, spot market. Moreover, for many major
players (banks and multinational corporations) this is not speculation, but a real
necessity. For example, many of the largest US companies in Europe, such as
Google, Microsoft, McDonalds, can sell the surplus of Euro every day in bulk,
never caring where it goes or who it buys. Look at Figure 3.4. Futures on the
Euro/Dollar from 08/05/14 to 20/05/14 dropped almost all the days in a row and
the price fell from 1.3914 to 1.3688, but these days the mood of the crowd was
"bullish". This happens from time to time. If you remember, 2014 was a year of
quite a large drop for the euro; the euro price fell from 1.39 to 1.2. During strong
moods such divergence can be misleading.

The second issue that I would like to consider about the work of Delta, Bid
and Ask is on what instruments it works well, and on what it gives a fairly
mediocre advantage. If we divide the tools with respect to the duration of the
investment

Fig. 3.4. Volumetric daily chart of the Euro/Dollar futures (6E, CME). Note the drop of the price with a
positive delta.
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 Volume analysis Starkoff Andrew

on short term (futures, options) and long term (equities, bonds, etc.), then we can
see that on long-term instruments Delta, Bid and Ask always provide a significant
advantage. Why is that? Because on these instruments the big players often come
with a long eye. So often they either buy or get rid of the positions. Not many
players can open short positions without covering. Because mathematically, when
you open a buy position - you are limited in the losses (maximum loss if the stock
drops to zero), but are not limited in the profits (share may increase in price by tens
of times). On the other hand, when you open a short position without cover - you
risk more, as profit is limited to the fall to zero, but not limited to losses. If a stock
will grow ten times, your losses may be more than 10 times compared to the
original position.

Fig. 3.5. Shares of Volkswagen company. The daily chart.

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There are many different examples and literature on this subject, but we will
consider one of the brightest. Corner with shares of Volkswagen (Fig. 3.5). Due to
the closing of not covered short positions prices have shot up in just one day for by
more than five times. With 210.5 Euro (at the end of Friday, October 24) to 1005
Euro per share with company's fundamental value of 150 Euro per share. Now
imagine that you are a fund manager, and you have these shares in a short position.
You not only need to every day pay, because you sold not covered shares (sale of
not covered shares implies their absence, but if you don’t have them - you must
borrow them somewhere for a while for a fee with refund guarantee), but then
suddenly the price has shot up for just 1 day by 5 times. Let's say you are a
conservative manager; you have diversified your risks and opened short positions
of these shares for only 5% of your capital. But when the price has increased 5
times, then at the moment your losses on the portfolio amounted to minus 25%.
Not very good for the conservative portfolio manager, right?! What customers
would agree to continue working with you?! On the other hand, if you hold a 5%
stake in the long position (you may just buy them), and the price suddenly dropped
to zero - then your losses on the portfolio will be 5%, which, in principle, is quite
tolerable. The price cannot fall below zero, while “falling to the ground” is also
very rare. The case of Volkswagen is not the only one. Such cases were quite a
few. Therefore, many large fund managers primarily worry about their risks and
rarely sell not covered shares.

Let's go back to the Delta, Bid and Ask. For stocks significant volumes with
the positive Delta often mean buying. Few people will try to shovel money in
uncovered short positions, while they come out of the position generally smoothly
in a certain range. Such large volumes often act as the magnet for further price
return. Pay attention to the following chart of the JPMorgan Chase company (Fig.
3.6).

The fall of prices was stopped by over large amounts (for example, at a cost
of $ 57.6, trades for 9 million shares with an average volume of 0.5-1 million in the
cluster have been made), and the delta indicates the aggressiveness of buyers. For
this situation, word "played-out" is very suitable. "Bears" played-out after the
attack on the "bulls", waving the white flag.

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Fig. 3.6. Volumetric daily chart of the JP Morgan Chase & Co company (JPM, NYSE); pay attention to
the way they were trying to push the stock price down, but the drop in the stock met with "bullish
mood" and huge volumes. In the end, the price returned to its levels.

Fig. 3.7. Volumetric daily chart of JP Morgan Chase & Co stocks (JPM, NYSE). Note that the drop occurs
without strong volumes in clusters and on negative delta.
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Let us now observe the standard scenario of stocks’ falling, when buyers are
not particularly interested in purchases. Fig. 3.7. Shares of the JP Morgan Chase
company. Standard scenario - when the stock falls without significant volumes in
clusters (absence of large customers) and on the negative delta (the presence of
aggressive sellers). Please, turn attention to how the fall was stopped. Volumes in
clusters increased significantly, aggressiveness of buyers in the delta also
appeared. The price for some time has been stopped. If you make investments or
have long-term objectives on the basis of fundamental analysis - it will be a good
signal for you to purchase, but read about it in a separate chapter.

Conclusion. There are precise data that should be taken for granted and there are
calculated data that should be considered as indicators or "the hint". Delta, Bid and
Ask are not accurate data, but the calculated tools for the identification of the
crowd mood. There are several methods for calculating Delta, Bid and Ask, and
therefore the numbers in different programs cannot match. Delta, Bid and Ask are
a good additional indication for a decision, when you have a certain view on the
market. For some instruments (stocks and bonds), they can operate with greater
precision, on some instruments - less accurate. Nevertheless, this indicator in
conjunction with market analysis and logic will always gave additional factors to
evaluate the situation and trading. We have considered mainly the daily ranges in
the examples, but Delta, Bid and Ask are working similarly within the day.
Rebounds and breaking through the levels, strong movements are always
associated with Delta, Bid and Ask. If in your trading you will use this option, you
will significantly improve your results.

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About author
I have an experience in trading from 2006 and from 2009 I started using volume
analysis.
My methodes based on volumetric analysis. I prefer intraday trading with little
stops. I trade ES, NQ, 6e, CL, B, RTSI and other.
In 2016 I received on my public account 70% of profit for 6 months. You can see
results on my Twitter account.

Contacts
Thank you for your attention to this book, if you have any questions or proposition,
please contact me:

by email: starkoff@volfix.net

Facebook: https://www.facebook.com/volfixtrader/

Twitter: https://twitter.com/TraderVolfix

Education sources:

https://themarketprofile.blogspot.com/

https://goo.gl/a8MTAf - Youtube Channel

www.volfixtrader.com

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https://education.volfixtrader.com

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