I am continuing my "education" into the meaning of "extreme low volatility" studies or what can be considered "Fat-Tail" events and apply mathematical constructs to reveal the price discovery process in a structured manner from otherwise chaotic price movements. My observations and studies have brought the following understanding, which is underscored by several successful trades:
- Extreme Low Volume tests often coincide with Doji candlesticks
- Extreme Low Volume tests often define levels of support and resistance
- Just like low volume, high volume buying/selling also defines these levels
- There are statistically significant levels of low volume and absolute ones - both are meaningful in what happens afterwards.
- Tests for supply and demand occur often when volume is low yet price bar range can be "large" nevertheless.
- When combined, low volume testing AND price volatility is without question the best predictor of future price movement.
- I am finding that the best approach is to trade against inflated volatility and use Fat-Tail events (low volume signals). When volatility deflates, the market soon shows its hand in terms of direction. Spikes in order flow ($TICK) and their frequency is an added "heads up".