All language subtitles for 9. Volume the subjectivity of interpreting it

Volume, the subjectivity of interpreting
it. We are going to briefly review the

implications of the law of effort versus
result so we can subsequently add a new

way of interpreting this interaction,
which will allow us to draw new

conclusions about market participation.

In financial markets, effort is
represented by volume, while the result

represented by price.

This means that the price action should
reflect the volume action. Without

effort, there cannot be a result.

It is about evaluating the dominance of
buyers or sellers through the

convergence or divergence of price and
volume.

With respect to volume, a significant
increase indicates the presence of large

traders looking to generate a movement,
be it a continuation or a reversal.

If the effort is in line with the
result, it is a sign of the harmony of

movement and suggests its continuation.

If the effort is not aligned with the
result, it is a sign of the divergence

the movement and suggests a reversal.

Meanwhile, objectively, the absence of
volume tells us there is low

participation. For whatever reason,
there are only a few traders interested

trading at such price levels, which
translates into low volume.

This complete comparison table shows the
application of the principle of effort

versus result in different contexts
which, as you know, is an excerpt from

book, The Wyckoff Method in Depth.

Based on the law of effort versus
result, We always try to analyze the

action with respect to the traded volume
to try to determine if the movement

suggests harmony or divergence.

We have always been told that an impulse
movement, to be valid, should be

accompanied by high volume, which
represents the participation of the

traders supporting the movement, and
that on the other hand, if the same

movement is accompanied by low volume,
it represents divergence and means we

should treat that movement as false.

suggesting a potential and imminent
reversal in the market.

Well, this can apply to a large number
of cases, but like everything that has

do with the market, it is not an
absolute truth.

If the price undertakes an impulse
movement with high volume, this is a

positive sign, but if it does so with
low volume, this is not necessarily a

negative sign.

The rationale has to do with the intent
of the traders who are currently

participating in the market.

Here are a couple of order book charts
that show the importance of passive and

aggressive participation, as well as the
incidence of the lack or absence of

participation on one of the sides, an
excerpt from my book Wyckoff 2 .0.

Is it then possible that the market can
move in one direction and that it does

not necessarily suggest a divergence?

Absolutely. This is what happens when
there is not a lot of very active

of one of the parties, buyers or sellers
in the market.

The absence of participants in one
direction makes it easier for the market

move in the opposite direction.

It is pure logic. If there are few
sellers willing to sell with very little

buying power, buyers will push the price
up quickly and easily, and very few

trades will take place because there
will be very little supply available.

All of this will be reflected as a
bullish move accompanied by relatively

volume. This is exactly what happens in
this example from the s &p 500 futures

market We see an upward trend movement
that at the aggregate level shows a

decrease in volume during practically
all of its development Especially in the

final part But what is very striking
moreover is what we can see in the

have marked These are upward impulse
movements accompanied by really low

Extremely low I would say but the market
doesn't care and continues to go higher

and higher.

I am sure that there would be many price
and volume traders looking at the asset

at this point and considering the
possibility that the market was going

showing divergence, since it is not
accompanied by relatively high volume,

leading them to continually forecast
bearish scenarios.

As we can see, these types of
interpretations are utterly wrong, since

start from a basic misconception.

related to the level of interest and
participation on both sides.

This is a very clear example of what I
am trying to illustrate with this

concept. If the market is severely
unbalanced upwards, where most traders

believe the price is undervalued and far
from its fair valuation, the market

will most likely move higher, without
relatively high volume, basically and

fundamentally because there will not be
many traders willing to sell.

Later, we will return to this concept.

applying it to a particular situation,
the moment of the breakout.