A friend of mine and a fellow trader called me after my last post and, after wishing me a happy new year, asked why I make such a big deal about volume when my futures chart does not even include volume.

To his surprise, I had to tell him that my futures trading systems chart absolutely does include a consideration of volume. He countered that there was no volume plotted on the chart. And he is correct, at least in part; I do not plot volume on my charts when trading futures. However, volume is considered when I trade.

You see, I told him; I use only tick bars and not minute bars (he still trades with minute bars in spite of the many times I have told him tick bars are better). Tick bars do consider volume, and they do so automatically.

Volume has two important considerations in short term trading. One is the total volume of the market which affects liquidity. The other is the changes in volume with time.

Market liquidity is important because a thinly traded market does not have the same psychology at work as a normal market.

In a normal market, increased trading usually indicates a move in price is taking place – and short term traders live or die by market moves. Tick bars automatically adjust our charts to the increased trading activity with respect to time. Rapidly increased volume means rapidly increased trading; and I know of no better way to catch it than tick bars.

 

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