Secrets of Volume Spread Analysis
Presented by:
Nigel Hawkes
Chief Executive Officer
Hawkeye Traders
www HawkeyeTraders com
www.HawkeyeTraders.com
History
y of Volume
• In the 1930s, there were three great traders.
¾ W.D. Gann – An eccentric who used methods based
on ancient mathematics, geometry, and astrology.
¾ Ralph Nelson Elliott – Method based on wave count.
Although a great hindsight tool, in the live edge of the
market, where do you start the wave count?
¾ Richard Wycoff – Method based on analyzing
volume with price movement.
Standard Volume
• Standard Volume is the total number of shares
bought and sold during a specific time or tick
interval and takes no account of the open and
close.
Volume = 174,273
Volume Spread
p Analysis
y
High
O
Open
Volume
Cl
Close S
Spread
d
Low Analysis
Volume
• Takes into account volume plus comparing
the open and close.
Hawkeye
y Volume
Average of X number of volume bars
C
Compared
d tto
Average
g True Range
g
Compared to
Open and Close of the price bar
Th H
The Hawkeye
k V
Volume
l iindicator
di t performs
f over 300
calculations per bar.
Wide Price Bar With High
g Volume
Bar
a A
You should expect a greater than average volume. The relationship of the
close on Bar A is an indication of whether it is buying or selling – the close is
in the bottom 1/3 of the range indicating selling.
Wide Price Bar With Low Volume
Bar A
You should expect a greater than average volume. Although, Bar A appears to have more
volume
l than
th previousi bars
b for
f the
th range off that
th t bar,
b it should
h ld have
h had
h d substantially
b t ti ll more
volume for that range. So this is, in fact, a low volume bar indicating a pause. This is
confirmed with the close being at the midpoint of the range.
Narrow Price Bar With Low Volume
Bar A
Narrow price bar you should expect low volume
volume. Bar A shows a narrow range and low
volume – indicating a pause even though the close is less than the open it shows that
there was no demand for selling.
Narrow Price Bar With High Volume in Uptrend
Bar A
Even at the top of the trend, Bar A shows that there is above average volume for that
range indicating
i di ti b buying.
i If it was selling
lli ththe range would
ld h
have bbeen ffar greater
t as th
the
bid and offer would have expanded. Even though the close is less than the open, it is
showing that this share was not being sold, in fact it is a sign of strength.
Narrow Price Bar With High Volume in Downtrend
Bar A
Bar A shows there is above average volume for the range indicating buying. Even
though the close was less than the open, it indicates accumulation, for if it was selling
the range would have been far greater
greater.
Applying
pp y g Volume Spread
p Analysis
y
• Ebay
– Began the new year at $58.60 per share
– Earnings report expected January 19, 2005
– Close on January 20, 2005
• $41.67 per share
– However, with volume spread analysis, sellers were
identified entering the market as early as January 3
3,
2005
16 Days before the Earnings Report was published
Applying
pp y g Volume Spread
p Analysis
y
Two weeks before
report was due.
16 days
before report
was
published.
Putting
g It All Together
g
Buyers
Sellers
Identified
Identified
Sellers
S ll Buyers
Identified Identified
Conclusion
• This is a very simple explanation on volume
spread analysis. Hawkeye performs over 300
calculations per bar to ascertain whether it is
buying, selling, or neutral volume.
• Hawkeye y can also analyze
y tick volume,, which is
approximately 80% as accurate as real volume,
as obviously there is no open and close in tick
volume.
• Then by adding standard deviation to price
movement, pattern recognition, and Hawkeye’s
money management rules,
rules we have a
formidable trading tool.
Great News
• I have decided to give the Hawkeye
Volume indicator free to all TradeStation,
eSignal and Multicharts users.
Go to
www.HawkeyeTraders.com
and click on the
