Quote:
Originally Posted by 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? |
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.
03-08-2007, 07:48 PM
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