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Flojomojo

Thoughts on Forex Volume

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Let me summarize this thread in a couple of sentences:

 

- Due to the OTC microstructure of the FX market, obtaining detailed volume figures is impossible.

Largely correct - studies are more frequent now but still not 100% of volume is included. This will change in the next few years. Plus the value of this information is such that those who are doing such work are largely reticent about sharing the results.

 

- Tick-"volume" as it is called only gives a snapshot of the overall activity going on.
Incorrect - it tells us precisely nothing about activity (see my explanation earlier re RIC contribution, data intellectual property etc)

 

- Tick-"volume" is a misleading expression. Since here the number of price changes are counted and the FX market has a constant stream of repricing quotes, the figure doesn't necessarily provide a volume indication.
Correct, although the last sentance still seems to hold out hope that really isn't there.

 

- Tick changes and volume might me uncorrelated or correlated sometime...but to this point nobody in this forum can or wants to tell whether or when a correlation exists. Theres also no study about how the flow of price quotes/ticks gives indications about the underlying supply/demand situation.
Incorrect - I have told you in no uncertain terms about correlation - it is irrelevant and what I think you're really referring to is causality NOT correlation. Plus you omitted the many times where it will actually be negatively correlated. So if correlation veers from positive, to flat, to negative, that is no sort of a useful correlation at all.

 

- Usage of tick-volume has no proof yet (that I am aware of) linking ticks to volume. Scientifically speaking it yet belongs to the mumbo jumbo section. Nevertheless some traders use it and are doing well!
Incorrect - there is no 'Yet'. It just isn't causal.

 

That's my take on this thread.

 

GJ

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I'm very well aware about the concept of correlation and the need for causiality for it to give it meaning! Let me point out the following case:

(i) my broker connection, platform, etc. gives me a statistically relevant sample of overall market price adjustment activity

and

(ii) 95% of tick changes at the inside spread has positive correlation with some volume traded

 

...then I would check how to use this information! I admit that those are two very big IFs! The point is that neither me, nor you know whether (i) or/and (ii) is the case.

 

And apart from volume it would be interesting in itself to know whether a sample flow of ticks carrys any information about the supply/demand situation of the market.

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I wonder if bid/ask changes (so-called tick volume) can be used for other instruments, irrespective of whether they actually offer traded volume. If so, you could check for causality that way, by using, data from a very liquid futures contract.

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I wonder if bid/ask changes (so-called tick volume) can be used for other instruments, irrespective of whether they actually offer traded volume. If so, you could check for causality that way, by using, data from a very liquid futures contract.

 

I think you could certainly do the analysis, but I still think that the specific factors I outlined regarding the way FX data is disseminated mean that the results simply don't translate to FX.

 

Look, at the end of the day I can't force people to have the same opinion as me on this stuff, but look at it this way;

 

I sit here at my desk. I have all the electronic trading tools I could want. I have quants and researchers who are far cleverer than I am. I have developers who can program stuff if I need it. Don't you think if there was some causality here it would be in my interests to exploit that?

 

Knowing the minute ins and outs of the FX market is 90% of my job, so I have a vested interest in what you guys are all saying being right about tick volume because I could use that to enhance our algorithmic trading capabilities etc. But I still don't buy it. And I am in a position to do more than just guess at stuff.

 

So this is why I can't help feeling all everyone else is doing is clutching at straws. People don't have access to all the volume data, nor do they have access to the (not 100% comprehensive, but far better than anecdotal) info the banks etc have. So they are desperate to find something that equates to the tools the 'big boys' have. But the retail community doesn't have access to that data yet. Sorry, that's just the way it is.

 

What you CAN do if you have the resources, is pay for expensive time and sales data to be delivered via a lightning fast pipeline from some of the ecns (EBS in particular do this) and can crunch this data to your hearts content (till your wallet implodes at any rate). But that's real transaction data, NOT some half@ssed approximation from a third rate chart vendor.

 

GJ

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Excellent points, GJ.

 

My ah-ha moment in this thread was that if some were able to exploit this successfully in the retail forex world, why not elsewhere.

 

It's my understanding that the institutional pros (banks, et al) don't use this methodology when trading, if only because, as you note, they've got the access to the real data underlying the activity.

 

If that's the case though, why do some desk traders swear by tools like Tom DeMark's TD Sequential indicator.

 

Here's a link: http://tinyurl.com/5n7kq9

 

Do you feel there's any validity to technical analysis tools like this - or are they just blowing smoke up the arse, so to speak?

 

-fs

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So this is why I can't help feeling all everyone else is doing is clutching at straws. People don't have access to all the volume data, nor do they have access to the (not 100% comprehensive, but far better than anecdotal) info the banks etc have. So they are desperate to find something that equates to the tools the 'big boys' have. But the retail community doesn't have access to that data yet. Sorry, that's just the way it is.

 

...99% of newbies are deaf when they are told by genuine traders the real hard facts that they need to know about trading. First of all they put their hands up in horror, then they give a mouthful to the person who has told them, and then they firmly slap their hands over their ears so that they can't hear any more.

 

And then someone comes along who tells them all the sorts of things they want to hear. Wonderful cosy things such as how easy it all is, how it only takes a few hours to master the markets, how money just falls over itself to jump into their accounts, how special software will only select winning stocks, how a newsletter will reveal all the secrets, how there are secret formulae and secret pivot levels which are guaranteed to work, there's a guaranteed money-back offer, etc, etc. They are wooed by these softly spoken people and happily hand over thousands of pounds and wait eagerly with their wheelbarrows to cart off all the promised riches from the market. And they end up having to sell the wheelbarrow to get the bus fare for the trip home.

 

There are things newbies NEED to know, but these are never the things they WANT to know. (Skimbleshanks)

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There are things newbies NEED to know, but these are never the things they WANT to know. (Skimbleshanks)

 

DB,

 

If you're gonna cut and paste someone else words, at least be kind enough to post the actual link to the document for reference. While it's true that it's the content is the point, readers might be tempted to believe that you actually wrote what you posted, when that actually isn't the case.

 

Just a pet peeve of mine.

 

-fs

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@GJ:

I hope you did not get me wrong! I highly appreciate your opinion and your participation in this thread!

 

@DB: Too bad I read of you in this thread so late. I've always enjoyed your insight, especially when its your own! ;)

 

Have a nice weekend,

Flojomojo

Edited by Flojomojo

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DB,

 

If you're gonna cut and paste someone else words, at least be kind enough to post the actual link to the document for reference. While it's true that it's the content is the point, readers might be tempted to believe that you actually wrote what you posted, when that actually isn't the case.

 

Just a pet peeve of mine.

 

-fs

 

You'll note that not only is the quote italicized, but the author is provided in the parentheses at the end. This is standard style.

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You'll note that not only is the quote italicized, but the author is provided in the parentheses at the end. This is standard style.

 

Plus you have known skim for how long? I think long enough (and as opposed to people who have never met skim)

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Do you feel there's any validity to technical analysis tools like this - or are they just blowing smoke up the arse, so to speak?

 

-fs

 

Not a huge fan myself, but I don't try and force others to use the methods / tools I use. Prefer a simpler approach myself. Know a few peers who do like Demark though.

 

Don't, however, get me started on Elliot Waves ;)

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GJ can you please explain why VSA can work with forex tick volume. i have seen it performed by VSA experts on spot forex with tick volume. i do use volume alot but only for futures so your reply makes no difference to me either way

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GJ can you please explain why VSA can work with forex tick volume. i have seen it performed by VSA experts on spot forex with tick volume. i do use volume alot but only for futures so your reply makes no difference to me either way

 

If you were able to do a real analysis of Apples vs Oranges you would find that your VSAx was trading price action. The correct test would probably be to give them a feed with valid prices and randomized "volume" data ... and then you could be amazed that all a trader needs (even one who looks at volume) is price.

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GJ can you please explain why VSA can work with forex tick volume. i have seen it performed by VSA experts on spot forex with tick volume. i do use volume alot but only for futures so your reply makes no difference to me either way

 

I have no idea why / whether it works. I don't use VSA an I never have. I merely wanted to correct the awfully large amount of completely erroneous guesswork prevalent on this thread, about tick volume, and whether or not there is any causal relationship with actual mrket volume.

 

As I know for a fact that tick volume is a completely bogus measure invented solely to add another meaningless bell and whistle to retail charting platforms (name me one pro platform that has it?), why on earth would I want to actually study it any further than I already have done.

 

That's not to say I don't think other members should use tick volume, vsa or whatever you like. Equally, if someone came to me and said they had a way of reading tea leaves that told them what interbank eur/usd volume was, I would tell them to stop being so silly. But if they said they had a system that used this to give them 90% winners I wouldn't actually discourage them from using that. Call it what you like - a crutch maybe, a security blanket? whatever. If it works for you then fine. I just don't happen to share that view.

 

GJ

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I'm no forex export (I trade futures, and still am no "expert"). That said, thank you Gamma for sharing. This is a very common misconception of forex "volume", and needs to be put to rest. You're not seeing volume, or anything close.

 

As for how it (the count of price changes) may "work", I first recommend you to Dbphoenix wonderful story, which has applications outside of just indicators. It may be a giant coincidence that what it's counting happens to help with VSA, it may be a random cloud (where you see what you want to see), or it may simply not "work". I'm not exactly sure how you're testing if it "works", but if VSA needs volume, this isn't it. Regardless, don't fool yourself into thinking you're using something you're not.

 

edit: Replying to walterw's comments below: I don't even think it's a good measure of market activity. Read Gamma's previous posts; it can increment without any trades taking place. Likewise, it could not budge when volume is slammed, due to a close match of buying and selling pressure. It also could move a good deal under moderate volume. The point is, it's not a proxy for volume, because it's not specifically correlated in any way (positive or negative).

 

If what it is measuring is helpful, use it (no one's saying not to). However, it's not volume, or even a proxy (which should share a positive correlation).

Edited by atto

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I have no idea why / whether it works. I don't use VSA an I never have. I merely wanted to correct the awfully large amount of completely erroneous guesswork prevalent on this thread, about tick volume, and whether or not there is any causal relationship with actual mrket volume.

 

As I know for a fact that tick volume is a completely bogus measure invented solely to add another meaningless bell and whistle to retail charting platforms (name me one pro platform that has it?), why on earth would I want to actually study it any further than I already have done.

 

That's not to say I don't think other members should use tick volume, vsa or whatever you like. Equally, if someone came to me and said they had a way of reading tea leaves that told them what interbank eur/usd volume was, I would tell them to stop being so silly. But if they said they had a system that used this to give them 90% winners I wouldn't actually discourage them from using that. Call it what you like - a crutch maybe, a security blanket? whatever. If it works for you then fine. I just don't happen to share that view.

 

GJ

 

Hi GJ, I understand your point on real market volume vs tick volume, certainly your opinion is correct, tick volume is diferent to real volume on forex... now let me add this : tick volume is a measurement of market activity and should be considered as an indicator itself, maybe we should not call it volume, but market activity, so far I had been 12 years in the markets and I can tell you on my experience that this proxy volume data does work... if you go thru the vsa thread there where lots of analisis with proxy volume data that where very nice and had excellent performance... some things on markets dont have very logical explanations, but work, by the way do you have some particular setup, please I would like a link to your thread... thanks a lot Walter.

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I don't care what the analysis is Walter, I think I've done more than enough explaining already about why this ISN'T a measure of 'real' market activity (and remember, I can see this stuff taking place on my screens so I know what real market activity looks like).

 

For the last time.....

 

Tick volume is a measure of the number of price updates BY A CHART PROVIDER'S DATA FEED. Things happen to make these updates occur that have literally NOTHING to do with trading activity.

 

Ok - I'm bored with this now. Walter - there really is no convincing you on this one so I give up.

 

GJ

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Just before everyone agrees to disagree perhaps I might a solicit opinions on a couple of random thoughts (this is just brainstorming, Im certainly not putting anything forward as truth)

 

Is there any value in looking at the futures contract volume? Obviously closely correlated with the underlying spot and centrally traded in a proper auction. (Not sure why retail traders don't just trade the future to be honest).

 

I wonder if some find value in spot 'ticks' for similar reasons that traders watch thinks like the NYSE TICK. This represents the number of stocks ticking up minus the number of stocks ticking down on the NYSE. Some use it to gauge sentiment in different (but correlated) markets (like the S&P). Actually you could probably lean against it trading gold or oil. A fairly abstract beast but some keep there stops tight when extremes occur.

 

I buddy of mine uses astrology to trade (profitably). Not much evidence I can see that there is much correlation there (though he tries to persuade me otherwise), having said that he's pretty well accomplished in other techniques. I think many tools that even experienced and accomplished traders lean against may well be little more than crutches. Having watched Walter trade futures last year (in the TL trading room) he clearly has a great read on price action enough to trade well 'naked' (without indicators) is my guess.

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I don't care what the analysis is Walter, I think I've done more than enough explaining already about why this ISN'T a measure of 'real' market activity (and remember, I can see this stuff taking place on my screens so I know what real market activity looks like).

 

For the last time.....

 

Tick volume is a measure of the number of price updates BY A CHART PROVIDER'S DATA FEED. Things happen to make these updates occur that have literally NOTHING to do with trading activity.

 

Ok - I'm bored with this now. Walter - there really is no convincing you on this one so I give up.

 

GJ

 

No problem Sr. ENJOY, cheers Walter.

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As for how it (the count of price changes) may "work", I first recommend you to Dbphoenix wonderful story, which has applications outside of just indicators. It may be a giant coincidence that what it's counting happens to help with VSA, it may be a random cloud (where you see what you want to see), or it may simply not "work". I'm not exactly sure how you're testing if it "works", but if VSA needs volume, this isn't it. Regardless, don't fool yourself into thinking you're using something you're not.

 

If you were so inclined, and had access to the time series data, you could run a Granger Causality test I think, but I'm guessing that is a bit out of scope for many here (as well as not being as immediately gratifying as making sh*t up and sticking another indicator on your chart).

 

GJ (aka statto) ;)

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Yeah, I'm not convinced anyone here would put that much into it to actually do that kind of analysis for the tick count. Regardless, I hope we can put this to rest.

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If you want something that really works, paint your Esc key with red fingernail polish.....

 

...I'll get a Bloomberg keyboard. The Esc key is already red and it comes with some more fancy colors! ;)

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I think you might be judging those that hang out here rather harshly and with a broad brush. It's hardly difficult to test Granger causality with things like Matlab and R having inbuilt functions for such techniques, I'd go as far as saying its trivial.

 

It seems that there several retail traders that post here that have the smarts, gumption and tools to do such work. However I am not sure any trade spot FX :) (probablly too smart) :) unlikely they would devote time to prove or disprove a theory that would not have any benefit to thier own trading. Actually seems to me the best one could hope to do would be disprove the theory as there might be a third (unknown) process driving both series and that's one of a couple of places where Granger breaks down (based on my admittedly limited understanding).

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If you want something that really works, paint your Esc key with red fingernail polish.....

 

I did pay around using a game pad for scalping many years ago (A buy B sell). Yes, I was young and foolish. I am pleased to say that I am now old and foolish.

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Gold’s Outlook – Uptrend may continue, but US jobs data could trigger profit-taking. Always trade with strict risk management. Your capital is the single most important aspect of your trading business.   Please note that times displayed based on local time zone and are from time of writing this report.   Click HERE to access the full HFM Economic calendar.   Want to learn to trade and analyse the markets? Join our webinars and get analysis and trading ideas combined with better understanding of how markets work. Click HERE to register for FREE!   Click HERE to READ more Market news.   Michalis Efthymiou HFMarkets   Disclaimer: This material is provided as a general marketing communication for information purposes only and does not constitute an independent investment research. 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    • Date: 31st March 2025.   Trump Confirms Tariffs on All Countries, Sending Stocks Lower.   The NASDAQ continues to trade lower due to the US confirming the latest tariffs will be on all countries. In addition to this, bearish volatility also is largely due to the higher inflation data from Friday. The NASDAQ declines to its lowest price since September 11th 2024. Core PCE Price Index - Inflation Increases Again! The PCE Price Index read 2.5% aligning with expert forecasts not triggering any alarm bells. However, the Core PCE Price Index rose from 0.3% to 0.4% MoM and from 2.7% to 2.8% YoY, signalling growing inflationary pressure. This increases the likelihood that the Federal Reserve will maintain elevated interest rates for an extended period. The NASDAQ fell 2.60% due to the higher inflation reading which is known to pressure the stock market due to pressure on consumer demand and a more hawkish Federal Reserve. Boston Fed President Susan Collins recently commented that tariffs could drive up inflation, though the long-term impact remains uncertain. She told journalists that a short-term spike is the most probable outcome but believes the current pause in monetary policy adjustments is appropriate given the prevailing uncertainties. Although, certain investment banks such as JP Morgan actually believe the Federal Reserve will be forced into cutting rates. This is due to expectations that the economy will struggle under the new trade policy. For example, JP Morgan expects the Federal Reserve to delay rate cuts but will quickly cut towards the end of 2025. Market Risk Appetite Takes a Hit! A big factor for the day is the drop in the risk appetite of investors. This can be seen from the VIX which is up almost 6%, Gold which is trading 1.30% higher and the Japanese Yen which is the day’s best performing currency. Most safe haven assets, bar the US Dollar, increase in value. It is also worth noting that all indices are decreasing in value during this morning's Asian session with the Nikkei225 and NASDAQ witnessing the strongest decline. Previously the stock market rose in value as investors heard rumours that tariffs would only be on certain countries. This bullish swing occurred between March 14th and 25th. Over the weekend, President Donald Trump indicated that the upcoming tariffs would apply to all countries, not just those with the largest trade imbalances with the US. NASDAQ - Technical Analysis In terms of technical analysis, the NASDAQ continues to obtain indications that sellers control the price action. The price opens on a bearish price gap measuring 0.30% and trades below all Moving Averages on all timeframes. The NASDAQ also trades below the VWAP and almost 100% of the most influential components (stocks) are declining in value.     The next significant support level is at $18,313, and the resistance level stands at $20,367.95. Key Takeaway Points: NASDAQ falls to its lowest since September 2024 as the US confirms tariffs on all countries, adding to inflation concerns. Core PCE inflation rises to 0.4% MoM and 2.8% YoY, increasing the likelihood of prolonged high interest rates. Investor risk appetite drops as VIX jumps 6%, gold gains 1.3%, and safe-haven assets outperform. NASDAQ shows strong bearish momentum, trading below key technical levels with support at $18,313 and resistance at $20,367.95. Always trade with strict risk management. Your capital is the single most important aspect of your trading business.   Please note that times displayed based on local time zone and are from time of writing this report.   Click HERE to access the full HFM Economic calendar.   Want to learn to trade and analyse the markets? Join our webinars and get analysis and trading ideas combined with better understanding of how markets work. Click HERE to register for FREE!   Click HERE to READ more Market news.   Michalis Efthymiou HFMarkets   Disclaimer: This material is provided as a general marketing communication for information purposes only and does not constitute an independent investment research. Nothing in this communication contains, or should be considered as containing, an investment advice or an investment recommendation or a solicitation for the purpose of buying or selling of any financial instrument. All information provided is gathered from reputable sources and any information containing an indication of past performance is not a guarantee or reliable indicator of future performance. Users acknowledge that any investment in Leveraged Products is characterized by a certain degree of uncertainty and that any investment of this nature involves a high level of risk for which the users are solely responsible and liable. We assume no liability for any loss arising from any investment made based on the information provided in this communication. This communication must not be reproduced or further distributed without our prior written permission.
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