Original subtitles

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.