Volume in trading. This is something I have never considered seriously. I have heard people mentioning volume in trading here and there. I have seen how stocks and crypto data feeds return volume numbers along with open, close, high, and low prices. But I have never really paid close attention to volume.
I am not an expert trader, never was. But I always was fascinated with how markets work, price movements, trading, and investing. I was fortunate to be able to stay ahead overall and not pay the tuition fee to the markets before experiencing some gains.
I like trading stocks, options, and crypto. I do believe there is some art and science to it. For the most part in my trading I have relied on various indicators, some I have written myself.
While I am not an expert in either, I have passion for trading and programming. I believe these to make both trading and programming fun when combined.
I have never taken volume in trading seriously. But lately I kept hearing that volume is an important part of trading and provides important insights. I couldn't ignore it anymore. I had to see how traders use volume.
Fortunately, I had a book that I have acquired years ago that made a huge emphasis on volume, but I never got to read it. This book is A Complete Guide to Volume Price Analysis by Anna Coulling. I have dedicated last week to read this book and I would like to share my thoughts about it.
Volume Price Analysis is a terminology that Anna Coulling came up with for a methodology in analyzing markets based on price action and validating with volume. The books main focus is on price action analysis backed with volume without relying on any other indicators. Perhaps the only exception could be VAP - Volume At Price indicator, for which the author dedicated a chapter. While Volume At Price (VAT) adds another dimension to Volume Price Analysis methodology, it doesn't completely rely on it.
Anna starts out the book with her personal journey to trading world. She does is great job of telling her personal story of how it started with reading an article on a paper, then participating on a paid seminar, then what and who made significant influence on her journey.
First few chapters Anna tries to convey the concepts through stories and methodologies of legendary traders of the past like Jesse Livermore, Richard Wyckoff, Charles Dow, and Richard Ney. Not only she brings up these legendary figures in trading of the past but also uses fictional stories to make few concept in trading easy to understand.
In the beginning chapters of this book the reader will discover how traders made their trading judgements based on price tapes on assets, stocks and developed methodologies to rely only price action. By comparison today's traders rely on candlestick charts while all the information available is the same as before.
To quote Jesse Livermore:
This quote resinates with me when reading Anna Coulling's book and also the book title Reminiscences of a Stock Operator written under pseudonym Edwin Lefevre by Jesse Livermore. This is another outstanding book every stock markets student should consider to read.
What Anna Coulling is trying to convey throughout the book is some wisdom that has been used before, that is applicable today and perhaps will be long into the future.
When the author talks about he price action, she identifies various situations and stories that candlesticks tell but at the same time she emphasizes the validity of the story by the story what volume tells. In fact, in most cases she uses volume to validate the what price action is doing or present an anomaly. These two distinctions help in deciding wether to enter a trade, stay on a position, or exit.
While price action presented in a single candlestick, multiple candlesticks, and in various timeframes show where price might be heading, the volume is the essential part that confirms or shows an anomaly. When volume confirms what price action is doing it provides another layer of confidence to proceed with the trade idea. Otherwise, when anomaly in volume is present it may provide additional information that may potentially persuade us to take a different approach to the trade.
Throughout the book the emphasis of the author is to pay close attention to the volume and its correlation to the price action. Those two combined proved a powerful insight to the the trader.
However, this doesn't come easy by just reading guidelines and instruction in this book, but it entails dedication and practice. Anna does a great job in explaining why volume is important and how to react to certain volume and price action conditions. But she also makes sure that reader understands this theoretical knowledge must be turned into a practical skill by practice.
This may cause some difficulties for a beginner trader to get into habit of analyzing volume and its relationship to price action. I myself find it difficult to accomplish after finishing to read the book. Yet, I am optimistic over time including volume in future price prediction endeavors may provide better results.
That said her methodology is not too complicated. It starts out with a single candlestick and volume. Then considering multiple candlesticks and volume bars. After that also taking a look at slower and faster timeframes for the same verifications and anomalies.
Moreover, the book goes into details of how to spot support and resistance, how to recognize certain candlesticks and patterns, and ultimately utilize them all in analyzing the price action and volume at the same time.
Towards the end of the book, Anna tries to put all the concepts and knowledge shared into practice and presents multiple chart examples and explains movements in details through the prism of Volume Price Analysis.
Overall, it is a great book for anyone to want to learn more from other experienced traders about volume and its relationship with price action. I have learned a lot, but only in theoretical level. To really master the knowledge shared in the book a lot of practice reading the charts is required.
At the same time I had a difficulty understanding few concepts, like how author claims Volume Price Analysis is an art and not a science that can be coded and automated. As someone who likes coding and automating things I still can't fully understand this claim.
Another difficulty I found reading the book was, while author is super skillful in telling stories and explaining concepts, she fails to keep the technical stuff interesting. I fell asleep couple of times while reading the technical parts of the book.
Finally, throughout the book the author keeps claiming there are some insiders that are manipulating the market and price action and volume analysis must be done through the prism of some villains trying to manipulate the markets. I couldn't buy into that story completely. I still can't understand completely that markets are manipulated all the time. However, by using analogies like Adam Smith did with hidden hand in the markets that fix things one can overcome this obstacle as well.
There is no hidden hind in the markets. That is just a metaphor how free markets can regulate themselves. Keeping this in mind Anna's insiders manipulating the markets makes more sense and her claims for volume and price action help understanding the intentions better.
I did enjoy reading this book. At the very least, I will pay more attention to volume when considering trader ideas. But my hope is to practice price action and volume analysis suggested in this book more and see if they can help improving my trading skills.
Markets are fascinating. There are many opportunities there. Works of authors like Anna Coulling make things easier to understand and help will experimenting with trading ideas and finding personal edge.
Do you use volume in trading or investing? Have you read the book? What do you think? Let me know in the comments.