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Path of Least Resistance


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#1 danzman

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Posted 17 February 2005 - 07:49 PM

I hear everyone always talk about volume, and how low volume on up days is a bad thing...blah, blah, blah. What I don't hear people talking about is how much volume is takes to move a stock or index a certain amount. Did anyone who read about Jesse Livermore ever wonder what his tape reading was all about? How in the heck did he know what the path of least resistance was way back in the early 1900's using ticker tape where all you see is price and volume? There was no Elliot Wave, MACD, RSI, or genetic algorithms. I have to take an educated guess that he figured out that when it's tough to bring a stock down (meaning the change in price / volume is lower than average), but it's easy to take a stock up (change in price / volume is higher than average), the path of least resistance is up. Quick example: Just look at any ETF's monthly chart and volume. Notice that it took 1.2 billion shares traded to get SPY down to 116.37. Now, SPY just retraced the whole move down on half that volume. The path of least resistance is up. If we start seeing days where it takes a bunch of volume to move the averages up OR it takes little volume to move the averages down, then maybe we're at a turning point. If you start thinking from this perspective, I bet you're going to do better. If you already do (I think da chief might be doing this), then more power to you. P.S. It was still easier to take the market up on the 4th than it was to take the market down today... D
I don't make predictions, I just react.

#2 IYB

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Posted 17 February 2005 - 08:26 PM

Interesting thought, Dan. One thing that Livermore would often do is to test for the line of least resistance (LOLR) in the following manner - he'd sell (short) a big block of stock and watch how far (if any) this depressed price. Then he'd do it again, and perhaps a third time. Then after selling 3 big blocks of stock, if the price had barely budged - if it had held without declining on his sell orders - THEN he'd begin his real move- he'd cover the shorts and start accumulating. And as he bought, he wanted to see the price being marked up sharply on his buy orders - if not, he'd STOP buying.

IOW, just as you suggest - he would get long a stock IF it would NOT move down on big selling (implying big demand), and IF it moved up sharply on big buying (indicating limited supply). Then and only then would he conclude that, in fact, the line of least resistance (LOLR) was truly UP.

He'd go through the exact opposite exercize in order to determine that the LOLR was down, and that it was, if fact, time to take on his short line. He'd test the stock to see how it handled buy orders first - he'd want to see it refuse to advance on his big buy orders, AND he'd want to see it crack hard on his sell orders - an indication that there was just no demand - AND that the LOLR was DOWN.
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For me, the LOLR is defined by cycles, sentiment and momentum. And currently, these all say that the LOLR is clearly UP..........

LT-UP
IT-UP
ST-UP

I'll leave it to the daytraders to figure out what the market will do tomarrow. But for me, what truly matters is the underlying direction of the market. All of my work says that THAT is up in each of the major timeframes.

http://stockcharts.com/def/servlet/SharpChartv05.ServletDriver?chart=$SPX,uu[g,a]whclyyay[d19990323,20051223][pb55][vc60][iuah12,26,9!ld20!lo14!lh14,3][J32449460,Y].gif
http://stockcharts.com/def/servlet/SharpChartv05.ServletDriver?chart=QQQQ,uu[r,a]dhclyyay[d20040715,20051230][pb55][vc60][iuah12,26,9!ld20!lo14!lh14,3][J21152059,Y].gif

Seven Sentinels Remain in BUY Mode

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“Men, it has been well said, think in herds; it will be seen that they go mad in herds, while they only recover their senses slowly, one by one.” Charles Mackay, Extraordinary Popular Delusions and the Madness of Crowds

#3 danzman

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Posted 17 February 2005 - 08:45 PM

Exactly IYB. The thing about "reading the tape" is that it confirms if your thoughts are right or wrong. It's like when everyone started shorting Amazon.com back in the hayday. They all knew it was way over-priced (value wise), but the path of least resistance was up. You might be right in the end, but not before getting your clock cleaned. If you think your idea is sound, just wait until the path of least resistance is clear as day and you will be rewarded. Good 'ol Jesse had it right back in the day...and there's still nothing new under the sun...especially in the stock market.

D
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#4 Mr Dev

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Posted 17 February 2005 - 08:58 PM

I hear everyone always talk about volume, and how low volume on up days is a
bad thing...blah, blah, blah. What I don't hear people talking about is how much volume
is takes to move a stock or index a certain amount.


I know this doesn't strickly address your issue but if the end result is better volume
information in which to calculate market directions, this my be interesting for those who
are capable of taking it to the next level.

Posted Image

My BLUE Play and Stop FF & RW buttons on the side of the chart may look different
on your page but they will allow one to pause the demo as it move
thru information quickly


Here's da link for those interested

Liqudity Analyzer Demo Webpage


;)

.. .. ..
Mr Dev

......trading is basically a simple operation, but you have to be a genius to understand the simplicity.
.....timing,..... is ....everything !
... remember no guessing visit MrDev!

#5 mini-trader

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Posted 17 February 2005 - 09:28 PM

It seems pretty nice except that the data is only updated every 30 minutes.

"Bottoms come fast...Tops take forever"

#6 Mr Dev

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Posted 17 February 2005 - 09:45 PM

Dats funny cuz the Top left Data Selection widow shows a LDB Volume (15min) selection right there. You seem to have analyzed the service muy el rapido, dont over look anything ;)

.. .. ..
Mr Dev

......trading is basically a simple operation, but you have to be a genius to understand the simplicity.
.....timing,..... is ....everything !
... remember no guessing visit MrDev!

#7 Mr Dev

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Posted 17 February 2005 - 10:05 PM

"Downloading Intraday data updates are made available every 15-minutes
throughout the trading day. This only applies to LDB® data and not to the options or
Commitment of Traders data."



Here's what you get ............................... Details

Buy/Sell/Net Volume Transactions..............Totals of Buy, Sell, and Net Volume organized by...

*Trader Type (CTI)
*By Price (Strike for options)
*Time Frame (intraday, daily)
*Contract Month (specific, continuous, combined months)
*Volume Type (spread, non-spread, combined)
*Reporting type (electronic, open-outcry, combined)


Volume/Open Interest Summary....................................
Summarized Volume totals by contract month. The following items are captured:

*Total Volume (pit, electronic, combined)
*Total Open Interest, and Open Interest Change
*Exchanges
*Give-ups
*Adjustments

Commitment of Traders reports..............................................
Ten different views of the Commitment of traders report data. Over 130 data items are available. Data is organized as follows:

*Open Positions
*Changes in Commitments
*Percent of Open Interest by Trader Category
*Traders by Category
*Percent of Open Interest by Large Traders

Put/Call Ratios.................................................................
Six different looks of the Put/Call ratio by contract month. The following types are included:

* Put/Call ratio for all options
* Put/Call ratio using In-the-money options only
* Put/Call ratio using Out-of-the-money options only
* The above 3 dollar weighted using Strike Open Interest

Implied Volatility and Greeks...........................
Open interest and volume statistics for all listed options. Includes breakdowns by in-the-money and out-of-the-money options.

* Settlement's by Strike (Last, Previous, Open, High, Low, Life High and Low).
* Total Volume (pit, electronic, combined) by Strike
* Pain Strike™ Prices
* Total Open Interest/volume at Pain Strikes™
* Total Open Interest, and Open Interest Change by Strike
* Exchanges, Give-ups, Adjustments
* Total Volume/Open Interest for different option categories.


Market Profile®....................................................
LDB® data available by trader type (CTI) along with the time brackets traded. Market Profile® data is organized by:

*Price Quadrants (1,2,3,4)
*Opening price range
*Closing price range
*High Price
*Low Price
*Value Range

Downloading....................................................
Intraday data updates are made available every 15-minutes throughout the trading day. This only applies to LDB® data and not to the options or Commitment of Traders data.

Software Updates
Currently, unlimited updates to Liquidity Analyzer® are available. Each time you download, if a newer version is available it is downloaded and installed automatically.

Historical Data
Liquidity Analyzer® comes with the most recent 60 days of historical data. Data back to Jan 1st, 2003 is available ;)

.. .. ..
Mr Dev

......trading is basically a simple operation, but you have to be a genius to understand the simplicity.
.....timing,..... is ....everything !
... remember no guessing visit MrDev!

#8 snorkels4

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Posted 17 February 2005 - 11:51 PM

I hear everyone always talk about volume, and how low volume on up days is a bad thing...blah, blah, blah. What I don't hear people talking about is how much volume is takes to move a stock or index a certain amount.

Did anyone who read about Jesse Livermore ever wonder what his tape reading was all about? How in the heck did he know what the path of least resistance was way back in the early 1900's using ticker tape where all you see is price and volume? There was no Elliot Wave, MACD, RSI, or genetic algorithms.

I have to take an educated guess that he figured out that when it's tough to bring a stock down (meaning the change in price / volume is lower than average), but it's easy to take a stock up (change in price / volume is higher than average), the path of least resistance is up.

Quick example: Just look at any ETF's monthly chart and volume. Notice that it took 1.2 billion shares traded to get SPY down to 116.37. Now, SPY just retraced the whole move down on half that volume. The path of least resistance is up. If we start seeing days where it takes a bunch of volume to move the averages up OR it takes little volume to move the averages down, then maybe we're at a turning point.

If you start thinking from this perspective, I bet you're going to do better. If you already do (I think da chief might be doing this), then more power to you.

P.S. It was still easier to take the market up on the 4th than it was to take the market down today...

D

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i looked at volume indicators at stockcharts: PVO, OBV . i guess these could be used to indicate your point. i looked at a few charts using these and your conclusions seems to be right and wrong. a graphical illustration would be helpful :unsure:

mr dev post was to difficult
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http://www.zimbio.co...Veyron Crashing

#9 snorkels4

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Posted 17 February 2005 - 11:53 PM

The idea behind the OBV indicator is that changes in the OBV will precede price changes. A rising volume can indicate the presence of smart money flowing into a security. Then once the public follows suit, the security's price will likewise rise. Like other indicators, the OBV indicator will take a direction. A rising (bullish) OBV line indicates that the volume is heavier on up days. If the price is likewise rising, then the OBV can serve as a confirmation of the price uptrend. In such a case, the rising price is the result of an increased demand for the security, which is a requirement of a healthy uptrend. However, if prices are moving higher while the volume line is dropping, a negative divergence is present. This divergence suggests that the uptrend is not healthy and should be taken as a warning signal that the trend will not persist. The numerical value of OBV is not important, but rather the direction of the line. A user should concentrate on the OBV trend and its relationship with the security's price.
Andy House, Texas Man, Accidentally Drives 2006 Bugatti Veyron Into Salt Marsh

http://www.zimbio.co...Veyron Crashing

#10 danzman

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Posted 18 February 2005 - 02:56 AM

The idea behind the OBV indicator is that changes in the OBV will precede price changes. A rising volume can indicate the presence of smart money flowing into a security. Then once the public follows suit, the security's price will likewise rise.

Like other indicators, the OBV indicator will take a direction. A rising (bullish) OBV line indicates that the volume is heavier on up days. If the price is likewise rising, then the OBV can serve as a confirmation of the price uptrend. In such a case, the rising price is the result of an increased demand for the security, which is a requirement of a healthy uptrend.

However, if prices are moving higher while the volume line is dropping, a negative divergence is present. This divergence suggests that the uptrend is not healthy and should be taken as a warning signal that the trend will not persist.

The numerical value of OBV is not important, but rather the direction of the line. A user should concentrate on the OBV trend and its relationship with the security's price.

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On balance volume doesn't work. I believe Granville made that one. It tells you much of nothing. More volume does not mean smart money is getting into a stock. There's no public indicator that does what I talk about. EOM (ease of movement) is the closest. I can push you in the right direction with what I already said...

Change in price / Volume ........it's all about how easy it is to move a stock. Knowing the path of least resistance is the first part...chart patterns, internals, sentiment all matter as well.

D
I don't make predictions, I just react.