[Flojomojo]

Hi everyone,

in this thread I would like to share with you my thoughts on how to determine Forex volume data. Since my research journey has brought me to the VSA method, determining volume is a vital component.
Elder states in Trading for a living that there are mainly three ways how to measure volume:
1) The actual number of shares, contracts, etc. traded.
2) The number of trades that took place.
3) Tick volume as the number of price changes during an interval.
Since Forex is an OTC market with all three methods it is impossible to determine the exact volume. Apparently eSignal delivers tick volume but I could not find out how they actually determine it.

Now this is what I came up with:
interactive brokers claims on their website to have 11 interbank partners participating in their order book. The advantage with IB is that they actually display the volume that is available at the best bid/ask.
Since the best bid/ask volume is available this gives a (hopefully significant) sample of the overall market. So what I did now is to determine which volume changes might be actual trades and which ones just improve the bid/ask spread. The logic of what counts as volume can be found in the attached picture.

Next week I will check how this approach compares to tick volume. I still got to program it, but I’m curious if there is a substantial difference…after all it’s a big difference if 5 or 20 million change hands, although both count as one tick.

Does anyone have an eSignal chart for me with its volume figures? I’d be interested in how it differs to my method!

What do you ppl think about this approach? Is the reasoning fairly complete? Did I miss out something important?

Have a nice week,
Flojomojo

In spot FX you're still going to get "tick volume" or changes at the bid/ask, not actual traded volume, even if you're dealing with an ECN type broker.

That's the nature of the beast in the FOREX world. A good source to review all this is at http://www.kreslik.com. Review the posts and you'll find an in-depth analysis of this issue already done for your benefit.

-fs

[Flojomojo]

Hi forsearch,

thanks for your useful link! Thats quite some analysis Kreslik is doing there!

Yesterday I recorded the tickvolume parallel to the volume I monitored so far in the approach described in my earlier post. Every price change at the bid or ask was counted as one tick. I've attached the comparison graph for 15 minute intervals and the corresponding price movement during the period.

As you can be seen on the graph...the histograms are almost identical to the eye! A little calculation reveals:

1 minute interval: 88.4% correlation
5 minute interval: 95.8% correlation
15 minute interval: 97.4% correlation

...so unfortunately my previously described approach to volume is basically the same as tick volume!

Good trading,
Flojomojo

[GammaJammer]

Due to the way it is generated, tick volume is useless as a proxy for true FX market volume. I think I've put stuff up about this here before (or possibly over on T2W). Will try and dig up a link or two as it's a lot of typing.

edit http://www.traderslaboratory.com/for...html#post38090

here you go - thats one anyway. I think the more detailed stuff was over on T2W

GJ

Originally Posted by Flojomojo »

...so unfortunately my previously described approach to volume is basically the same as tick volume!

Flo,

Looks like you've got the jist of it now. So-called "Tick volume" in FOREX is the same as bid and ask changes, as you just empirically proved to yourself now. It's not the same as actually traded volume, since there's no central exchange for spot FX.

Whether it matches the data for FX currency futures, which are traded on an exchange (CME) and have actual traded volume available is an exercise that you may wish to look into as well.

-fs

[BlowFish]

I wonder if you FX experts consider it useful as a proxy to gauge relative volume?

I think it is clear it has no value at all determining absolute volume but can any conclusions be made by comparing the number of changes today between 9.30 & 10.30 with the number of changes yesterday between 9.30 & 10.30? Or for that matter comparing this 15 minutes with the last 15 minutes? Just wondering.

Also market profile seems eminently suitable for analysis of spot FX where essentially time (in the form of TPO's) spent at a level is used as a kind of proxy for volume. I have always wondered if anyone uses MP on currencies.

[GammaJammer]

Here's another post detailing why it's a completely useless proxy (under certain circumstances it may even have some srt of NEGATIVE correlation with volume)

GJ

http://www.trade2win.com/boards/fore...tml#post345757

[Flojomojo]

Originally Posted by BlowFish »

I wonder if you FX experts consider it useful as a proxy to gauge relative volume?

Hi Blowfish,
I just found approx. the same discussion here: http://www.traderslaboratory.com/for...-post1011.html
Sledge seems to use relative tick volume data. I just started my VSA journey, but what I have seen so far, relative volume gives an idea of whats going on in the background. The entire discussion is here: http://www.traderslaboratory.com/for...-3428-102.html
Good trading,
Flojomojo