Volume At Price Part II
A few months ago I posted similar volume at price charts to the Apple and Google charts below. I received some feedback asking for clarification of how to interpret the charts, so I figured now would be an opportune time to do so since there is a fair amount of evidence both are are carving out tops.
The charts and their meaning are very simple so don't read too much into them. The data provided is a distribution of volume at specific prices over a period of time. The time frame used is arbitrary. Day traders may use the price at volume charts to look for support of the prior day's action. Support and resistance ranges are typically found where the 70% volume distribution is found on the prior day's chart. Support if the price closes above yesterday's concentrated volume distribution and resistance if it closes below yesterday's volume distribution. Let's look at an example. Yesterday, prices in the crude futures market started at $10. By noon, prices had risen to $11. By 4pm prices had fallen to $10.25. While looking at the price at volume charts for crude intraday, we find that 70% of the volume was distributed at $10.75 to $11. A plausible interpretation might be that sellers were in control and were distributing shares as prices rose to $11. So, although the price of crude went up, were the buyers actually in control? The next day, traders would consider this information to determine their trading strategy whatever that might be. Obviously an extremely simple example which I am limiting to keep my typing to a minimum.
For more explanation, I'd recommend reading more about the Market Profile, which I loosely consider volume at price charts analogous to. To read more of Market Profile tactics and how to interpret Market Profile data, please visit the Chicago Board of Trade site here. There are links for studies, books and educational material from the Market Profile home page.
Let's look at how this data can be used on a longer term basis looking at the Apple and Google charts. Long term volume at price charts can give clues to areas of support and resistance. Again, there is no miracle in determining the time frame. You may choose to use since the start of this bull cycle. You may choose the last ten years as I have. Let me tell you why I am using ten years of data. It is strictly for fundamental reasons. I believe we are in a negative cycle and that stocks have not finished their correction post 2000. So, I want to see pockets of large volume at specific prices to anticipate where support might be in the event of a correction. ie, Those are where buyers likely stepped in and initiated heavy buying just as I discussed on the intraday strategy above. I'll marry that data with support & resistance, trend line and some proprietary fundamental and quantitative analysis to determine a resultant guesstimate.
I can assure you the odds are not with Apple or Google that they will continue higher for much longer. The market always reprices risk. Both of these may be great companies but it was just a handful of years ago Apple was a retread. Now, because of a crude product everyone is enamored with today, it has achieved enlightenment. All I can say is Apple has been this overpriced two times in the last twenty five years. Once it declined over 50% and the other time it declined over 80%. So, I'm quite confident those who believe Apple's future is without alot of risk do not have the odds in their favor. I don't think I need to say alot about Google as I just recently posted about Google.
So, just looking at nothing other than these charts, where might we find support for these two stocks.
We are looking for large distributions of volume. These areas of price will act as support if below and resistance if above current pricing action.
The charts and their meaning are very simple so don't read too much into them. The data provided is a distribution of volume at specific prices over a period of time. The time frame used is arbitrary. Day traders may use the price at volume charts to look for support of the prior day's action. Support and resistance ranges are typically found where the 70% volume distribution is found on the prior day's chart. Support if the price closes above yesterday's concentrated volume distribution and resistance if it closes below yesterday's volume distribution. Let's look at an example. Yesterday, prices in the crude futures market started at $10. By noon, prices had risen to $11. By 4pm prices had fallen to $10.25. While looking at the price at volume charts for crude intraday, we find that 70% of the volume was distributed at $10.75 to $11. A plausible interpretation might be that sellers were in control and were distributing shares as prices rose to $11. So, although the price of crude went up, were the buyers actually in control? The next day, traders would consider this information to determine their trading strategy whatever that might be. Obviously an extremely simple example which I am limiting to keep my typing to a minimum.
For more explanation, I'd recommend reading more about the Market Profile, which I loosely consider volume at price charts analogous to. To read more of Market Profile tactics and how to interpret Market Profile data, please visit the Chicago Board of Trade site here. There are links for studies, books and educational material from the Market Profile home page.
Let's look at how this data can be used on a longer term basis looking at the Apple and Google charts. Long term volume at price charts can give clues to areas of support and resistance. Again, there is no miracle in determining the time frame. You may choose to use since the start of this bull cycle. You may choose the last ten years as I have. Let me tell you why I am using ten years of data. It is strictly for fundamental reasons. I believe we are in a negative cycle and that stocks have not finished their correction post 2000. So, I want to see pockets of large volume at specific prices to anticipate where support might be in the event of a correction. ie, Those are where buyers likely stepped in and initiated heavy buying just as I discussed on the intraday strategy above. I'll marry that data with support & resistance, trend line and some proprietary fundamental and quantitative analysis to determine a resultant guesstimate.
I can assure you the odds are not with Apple or Google that they will continue higher for much longer. The market always reprices risk. Both of these may be great companies but it was just a handful of years ago Apple was a retread. Now, because of a crude product everyone is enamored with today, it has achieved enlightenment. All I can say is Apple has been this overpriced two times in the last twenty five years. Once it declined over 50% and the other time it declined over 80%. So, I'm quite confident those who believe Apple's future is without alot of risk do not have the odds in their favor. I don't think I need to say alot about Google as I just recently posted about Google.
So, just looking at nothing other than these charts, where might we find support for these two stocks.
We are looking for large distributions of volume. These areas of price will act as support if below and resistance if above current pricing action.
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