Average Volume Question

[Soultrader 12]

Since the the tumble of the indexes we are experiencing higher volatility and higher volume. The question is: Should traders consider the current volume as the norm? For example, today's rally on the YM occurs on a lower volume bar compared to the last 5 trading sessions. HOWEVER, this volume bar is well above average comparing the volume bars for the past few months.

 

How would you view this?

[TinGull 10]

I personally take it in context of the previous day. So...less than yesterday = bad volume for the bulls. But...that's just me.

[Soultrader 12]

See.. I would assume technicals become less helpful when the market is expressing climatic emotions. And the past few days have been nothing but emotions/momentum. Or should I take this into account as well?

[Nick1984 10]

I think that the huge volume on the market downtrend after last week was most likely due to a lot of stops being hit and it snowballed. With the large decline in price we saw plenty of buyers coming into the market to snap up bargains. A lot of these traders were longer term traders I think who saw these new lows as a great opportunity to top up their positions.

 

I'd expect that the lower volume on the rally is due to a bit of trepidation amongst buyers. Newer traders especially who might not have had the confidence to buy into a falling market would of waited until the rally was well underway before committing therefore volume on the rally is effected.

 

Specifically, i think that you need to take the daily volumes as being relative to eacother. Lower volume on the rally relative to the higher volume on the decline shows weaker support for the buyers!

 

I would say that you can make a more informed decision as to the normality of this new volume within the next few days for it could just be an abberation.

 

Im speaking of my own local markets of course but I'd assume the same applies to all you traders who trade the US markets!

 

Not sure if that answered your question lol.

[walterw 10]

I believe its clear we had a low volume up correction taking a look at the inmediat context, looks more like shorts covering, with no new longs... thats the first impression.... I always asociate the amount of volume directly proportional to the standard deviation, if volatility comes down so volume will come down... as ranges are still high, todays volume was low... cheers Walter.

[Anonymous 11]

  Soultrader said:

Since the the tumble of the indexes we are experiencing higher volatility and higher volume. The question is: Should traders consider the current volume as the norm? For example, today's rally on the YM occurs on a lower volume bar compared to the last 5 trading sessions. HOWEVER, this volume bar is well above average comparing the volume bars for the past few months.

 

How would you view this?

 

Volume Spread Analysis teaches us that volume is activity.

 

Volume should be looked at in two ways:

 

1. relatively- today's volume compared to the previous bar or bars

 

2. Actual volume

 

In this case the up day has come on volume less than the previous two day's and closed on its high. This is No Buying pressure. In a perfect world, today would have actual volume that was less than average, but the fact that it is relatively low is enough.

 

It may be the case that the Professional money is not interested in higher prices at this time. 85% of all volume represents Professional Money so if it is decreasing, their activity, or interest, is decreasing. Why would their interest be decreasing? They do expect higher prices at this time.

[brownsfan019 17]

Here comes the devil's advocate...

 

Why the concern with how much volume is being traded today vs. yesterday vs. last Monday vs. last month vs. last year, etc?

 

Don't get me wrong, I watch the daily volume simply to ensure that the markets I am trading are liquid enough for my trading, but rarely do I see a dropoff in volume that causes concern simply b/c of liquidity.

 

Now, with that being said, I trade on volume/share bar charts. Please don't misinterrupt my question of the comparison of volumes over different timeframes. I want to see volume each day and want to see it during the morning session, hence the reason for the volume charts; however, I really don't care if today's volume is more or less than the previous day (or any other timeframe) when trading on an intra-day basis only. When you are trying to take little moves throughout the day, the important thing is to capitalize on those moves.

 

The reason I mention this is that you can find days where strong volume equated to big moves and days where strong volume resulted in choppy or weak conditions. And of course, the end of day volume is great to know in hindsight, but as you trade during the day, you have no idea what to expect in terms of volume.

 

My opinion Soul is to not be concerned with the day-to-day volume changes. We know volume fluctuates daily and we know that high volume days can be followed up with higher volume days and/or lower volume days. You don't know till the end of the day. I think the real concern is being able to capitalize during the day when there is a good flow of volume in the market. For me, that resulted in volume/share bar charts visually depicting when there is volume in the markets.

[walterw 10]

browsfan : from an intraday aproach its ok what you say, now its interesting to see sometimes the big picture too... and volume has a lot to say on this big picture... it even told us that there was an inminent downmove as there was no more important volume on the previous top up moves... I dont know if you looked this video http://www.traderslaboratory.com/forums/f66/warning-signals-volume-1286.html it can be very usefull to know in witch overall context your small intraday trading can be (I trade a 22 tick chart, very small trading) but now I take into acct this daily context information, I can know more the general bias of the market... cheers Walter.

[brownsfan019 17]

  walterw said:

browsfan : from an intraday aproach its ok what you say, now its interesting to see sometimes the big picture too... and volume has a lot to say on this big picture... it even told us that there was an inminent downmove as there was no more important volume on the previous top up moves... I dont know if you looked this video http://www.traderslaboratory.com/forums/f66/warning-signals-volume-1286.html it can be very usefull to know in witch overall context your small intraday trading can be (I trade a 22 tick chart, very small trading) but now I take into acct this daily context information, I can know more the general bias of the market... cheers Walter.

 

I watched the video and here's what I saw (see enclosed pic):

 

1) Decent down move

2) Minimal down move

3) Minimal down move

4) Minimal down move

5) Minimal, if any, down move

6) Minimal, if any, down move

7) The 'big' down move we all saw

 

So, looking at these statistics based on the chart referenced in the video, it appears to me that 5 out 7 times what the 'volume was telling you' was not very good at all. The volume told you to short throughout a strong up-trend.

 

2 out of 7 times you made money, if you were still around for the #7.

 

Am I missing something here? Yes, it's easy to cherry pick the one or two times the volume 'worked', but that is useless if not taken into account with all the times the volume was 'telling' you something.

 

This chart is a perfect example of why I think trying to use daily volume to predict moves is very misleading.

 

Note - before anyone asks - I use a program called SnagIt to annotate my trading charts, like this one. If you are still using paint or not annotating your charts at all, that is a big mistake in my opinion. SnagIt is very user friendly and very inexpensive. It's from the guys that make Camtasia. http://www.techsmith.com/snagit.asp

[walterw 10]

I think brown you are missing something there... and is the fact that a volume surge can also spot an extreme... once that happens you must re-start the reading of volume from the most inmediat context (volume levels) (actually this thread topic)... now this is not for newbees it takes screentime to read this... I am not that expert must confess... cheers Walter.

[dalby 10]

i would disagree that technicals take less importance at climactic times/emotional etc.

 

imo, TA is, to a large extent, the study of aggregate trader psychology.

 

psychology is always an element of TA, and price is ultimately an opinion reached by two sides of every trade.

 

i think like TA in general (where one looks at various timeframes), volume and volatility needs to be considered in that context.

 

iow, for shorter term trades, the volume needs to be compared on a shorter time frame.

 

and for longer term trades, not so much.

 

this reminds me of the old trader joke, your broker calls and says "the bad news is your account is on margin call and down 50% of its equity. the good news that it was on low volume"

 

i don't think anybody should use volume and of itself to predict ANYTHING. that's true of market profile, of indicators in general, etc.

 

it's a matter of synthesizing information.

 

volume does matter (clearly) imo.

[brownsfan019 17]

  walterw said:

I think brown you are missing something there... and is the fact that a volume surge can also spot an extreme... once that happens you must re-start the reading of volume from the most inmediat context (volume levels) (actually this thread topic)... now this is not for newbees it takes screentime to read this... I am not that expert must confess... cheers Walter.

 

Walter - I understand the premise behind what the volume is possibly saying and how that can be interpreted, but did my chart example just show that 5 out of 7 times the 'extreme' was simply that the current up-trend took a breather only to resume the trend? I don't see how the chart showed us that the volume surges spotted an extreme. 5 out of 7 times it reinforced the strength of the trend. To me, an 'extreme' would be a major reversal zone and in this chart, the surges in red were anything but a reversal area. Yes, it could have been traded on the short side for a profit if you were able to exit timely.

 

We can both put our 'side' into words, but I think a chart is much more powerful since it is what it is. Taking a look at my annotations, would you agree that 1) there was a red volume surge and 2) if you assume a red surge can lead to a downmove that this did in fact fail 5 out of 7 times?

 

I realize it's easy for me to do this in hindsight, but I'm hoping to provide another side to the argument b/c it can be very dangerous when people in a forum all think the exact same way, esp any newbies reading this. The last thing a newbie should do is read this thread and start trading based on a red/green volume surge. I am attempting to explain here that the surges in our example at best signified a pause from the overall trend.

[walterw 10]

Brown : you cant take into acct the green or red color on the volume histogram, that is just the relationship between open and close of the day (1 bar) , you have to relate pivots of price action going up or down, can you take a look at the bars between 3 and 4 ?.... you will notice price was going up while volume was going down... then inside 4 you will notice a nice drop (large bar) with high volume, we can consider that a volume surge or "selling climax" wich stalls the down move... notice price starts going up and volume on the next days also goes up... thats bullish you will then notice that from PIVOT TO PIVOT volume talks... maybe what you are missing is the reading from pivot to pivot.... (not each bar) hope that helps cheers Walter.

[Nick1984 10]

  walterw said:

browsfan : from an intraday aproach its ok what you say, now its interesting to see sometimes the big picture too... and volume has a lot to say on this big picture... it even told us that there was an inminent downmove as there was no more important volume on the previous top up moves... I dont know if you looked this video http://www.traderslaboratory.com/forums/f66/warning-signals-volume-1286.html it can be very usefull to know in witch overall context your small intraday trading can be (I trade a 22 tick chart, very small trading) but now I take into acct this daily context information, I can know more the general bias of the market... cheers Walter.

 

clicked on the link, can't watch the video!?!

[walterw 10]

ooops that video is for premium members...

[Nick1984 10]

and how does one become a premium member? Sorry for hijacking this lol.

[Soultrader 12]

*BLING*

 

 

Every now and then I go through the member list to see how many posts, activity on board, time spent on board, etc... I boost accounts up that are regular participants on the board. I havent done this last month so will need to spend the weekend going through this.

[Nick1984 10]

yay!

 

[TheBramble 10]

  Soultrader said:

Since the the tumble of the indexes we are experiencing higher volatility and higher volume. The question is: Should traders consider the current volume as the norm? For example, today's rally on the YM occurs on a lower volume bar compared to the last 5 trading sessions. HOWEVER, this volume bar is well above average comparing the volume bars for the past few months.

 

How would you view this?

The correlation between Volume and Volatility obviously needs a context within which to test the correlation. The real trick is deciding how much of a timeslice you're going to use to set that context.

 

Soul, you're asking two questions: Is current Volume 'the norm'? Yes, it is for now. Does it have historical similarities? Yes it does. Will it continue uninterrupted and unchanged? Unlikely. So regardless of recent (relative) Volume, the technical basis for assessing Volume's likely interpretation with regard to its recent history and to price movement and Volatility (which I take as Low to High, not Close to Close) remains the same.

 

Your second question regarding how to view the specific instance of YM activity leads to a number of possible answers. The first being a question itself that when you get an uncharacteristicly vibrant price move on relatively low volume what can that indicate? And that this move occured on relatively low volume (within the last 5 days view), but within the context of the last 5 days Volume being much higher volume than previously leads to an obvious conclusion. I'm posting this a few days after the event so I obviously don't need to explain further or imply any foreknowledge of that conclusion.

 

The issue of Volatility and Volume is one I have spent quite some time researching and I did publish intermediate results from this on another site, but in essence, and very specifically in relation to this quoted post, you have to consider what is it that causes the daily range in any instrument to behave the way it does? And what does it 'mean' if this larger/smaller than usual range occurs on higher/lower than normal volume? And how do these clusters of higher/lower Volatility and higher/lower Volume relate to each other?

 

Basically it's a game of Who has been 'convinced' by Whom of What? People take action based on their understanding of what's going on. It's their understanding that's key to subsequent market action and generally quite unrelated to what is really going on.

 

I think I've only scratched the surface and probably not added too much to the initial query, but maybe it's a start.

 

 

 

btw - only just joined today and after a gentle stroll through the site there appears to be some really high quality posts and posters around. Good work.