This is a proprietary indicator, part of the RTT Indicator set.
Important Disclaimer: None of the proprietary indicators give specific signals of BUY and/or SELL prices or signals for investment decisions. They do however bring your attention to price action for further analysis only. Any BUY or SELL decision is purely your own responsibility. Please understand that we find favor with our proprietary tools, but they do not work all the time, nothing is 100% accurate. Please review our terms of use.
The RTT VolumeWave automatically determines small price waves and sums up volume (cumulative) per each wave. It is a simple indicator that works well with RTT TrendPower and RTT Volume. It allows the easy judgment of price to volume wave strength and thus see who is winning within Wyckoff phases, plus it also allows to you to determine an opinion of Wyckoff three fundamental laws at work.
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 don’t…why? 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.
Basic Volume to price action understandings:
Trend Strength:
- Rising prices and rising volume signal a healthy up-trend.
- Falling prices and rising volume signal a healthy down-trend.
Trend weakness:
- Rising prices and falling volume signal trend weakness.
- Falling prices and falling volume may signal trend weakness.
Technical Aspects of RTT VolumeWave:
- When comparing volume it is a question of how relative the differences are between volume waves.
- To fully understand this indicator you must read the books listed under the Richard Wyckoff page.
- Also look at the first 3 bars of the histogram and compare this to previous periods of bullish and bearish volume waves first 3 bars, this gives you a heads up of how serious the price move may be. [Chart ref (i)]
- Also compare total cumulative volume between bullish and bearish volume waves [Chart ref (ii)]. Plus if you compare this with how far prices has moved in percentage terms you will understand if the move is all buyers or sellers or a mixture of both. This can only be done by comparing volume waves in a relative sense.
- The time taken of the volume wave [Chart ref (iii)] compared to the total cumulative volume is also important and even more so when compared to the percentage price movement.
- The Wyckoff three laws are very visible with the RTT VolumeWave.
- The laws of physics apply. If there is force there should be equal 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 number 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.
How to Draw:
1) Use an Analysis chart
2) On price goto 'Price Ind' within the Indicators section, select RTTVolumeWave or RTTVolumeWaveP
3) For the histogram, in the indicator section either select 'Volume' or 'Indicators' and select volume with this list. Select RTTVolumeWave(Cum)
Caution:
When determining the short term trend by math, it is never completely accurate as the human eye. And as most calculations are lagging, picking the market turn exactly is very difficult, therefore the RTT VolumeWave looks back the last three bars each times it calculates the change in trend and if required it will re draw part if not all of the last three bars to the correct trend. This indicator is designed to review Wyckoff logic on short term price and volume waves, therefore it is best not use to as a signal system.
Alternative:
The RTT VolumeWave indicator uses math's to determine the short term trend. If you are a purist and wish to do the above yourself to your own satisfaction you can use our Volume Swing tools (however each swing is manually selected by yourself). The volume swing tool can be found within the 'Add Objects' process.
Example
Click for popup. Clear your browser cache if image is not showing.
The tool below helps to determine strength on down waves and weakness on up waves.
The demo chart in the video.
Click for popup. Clear your browser cache if image is not showing.
Here is a RTT Volume Wave on major Dow Jones reversals: 1929, 2007, 1987
NOTE: readtheticker.com does allow users to load objects and text on charts, however some annotations are by a free third party image tool named Paint.net
Investing Quote...
..“In a narrow market, when prices are not getting anywhere to speak of but move within a narrow range, there is no sense in trying to anticipate what the next big movement is going to be. The thing to do is to watch the market, read the tape to determine the limits of the get nowhere prices, and make up your mind that you will not take an interest until the prices break through the limit in either direction.”..
Jesse Livermore
.."A radical is one who speaks the truth."..
Charles August Lindbergh Snr
.."No amount of evidence will ever persuade an idiot"..
Mark Twain
.."So you think money is the root of all evil? Have you ever asked what is the root of money? Money is a tool of exchange, which can't exist unless there are goods produced and men are able to produce them. Money is the material shape of the principle that men who wish to deal with one another must deal by trade and give value for value(...) Money is made possible only by the men who produce. Is this what you consider evil?"..
Ayn Rand
..“If it’s obvious, it’s obviously wrong.”..
Joe Granville