Average Volume Question

[Soultrader]

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]

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]

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]

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]

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]

	Quote:	Soultrader
	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]

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]

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/for...lume-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]

	Quote:	walterw
	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/for...lume-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]

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.