The Cleanest Indicator of Other Traders

In the Psychological Capital newsletter this morning, I asked the question "what is the most direct indicator of other traders"? The answers I got surprised me. Most people said "themselves". The  second answer was "price." I was looking for volume.

This mystifies me a bit. Not that people didn't say volume (it is the all too simple answer) but that as many said "myself" as they did. With all due respect to my subscribers, I am doubtful that as many of us are using our own feelings - instinct and intuition - to read the market correctly as this unscientific survey would say. On the other hand, used properly, "oneself" can be an excellent indicator. 

Maybe it was a need to be smart - or to second guess me as I am kind of known for teaching trader's how to know the difference between instinctual and impulsive feelings. I suspect however that that wasn't it and that volume just seemd too mundane.

High volume at a price tells you that many traders are involved at that price and they will either defind it or have stops nearby. Those two facts tell you in advance where prices will hold and where the stops are resting. To really see this you need what is called a Market Profile chart. Right now I can go back and look at where the volume traded in the exact ES range we are trading in - even though it was basically a month ago.

A month is kind of a long time but the market can have a very long memory. On shorter timeframes - day to day - the volume nodes from recent days have tons of power to stop and hold price movement. As they develop, they also telegraph where the next stop run will be.

If in the end, we are only trading other traders (what we call The Social Markets Hypothesis) - and not the bars and the lines - it certainly has to pay to think in terms of what can we use that will most clearly reflect what they are doing or have done.

Price is king of course - but at any given moment the current price tells you very little about the people behind it. The volume accumulated at that price on the other hand tells you a huge "tell".