Market ranges getting smaller.

[blash]

I have noticed over the past year or so that the daily ranges of markets such as the Dax and FTSE are a lot smaller than a few years ago.

Is there any specific reason for this?

I have been wondering if some of it is due to the lack of pit trading as most exchanges are all electronic.

With everybody trading from the screen in realtime with instant access could be making the markets more efficient at pricing in the news etc.

Is this the way its going to be from now on?

Then again I could be talking absolute ******** as to the reason, but I'm sure the ranges are smaller.

Cheers

 

[bonsai]

blash
not sure how you are calculating the range but
two things occur to me

the confidence of a few years ago has still not returned.
but there is less 'panic' selling now than say 2 years ago
and, proportionately, the mm's are 'stealing' more points on the opening quotes.

after such a big fall, it seems only natural that all eyes are on the U.S opening, both S&P and Nasdaq. I think a lot are expecting a further fall.

don't think there is any way of testing the 'efficiency' of the market. But falling markets always seem to trade differently from rising markets.

 

[oatman]

Certainly volumes are greater in bull markets.

 

[stevet]

pit trading is key to causing volatility in markets - so ultimatly electronic exchanges will diminish ranges

but the commencement of bear markets will always increase volatilty substantially, and the average trading range is now just returning to the mean

but of course it will diminish a lot more than its present level - since it will also move to the same extreme in diminshing volatility as it did in increasing

but we need to get the dow down to the 5,000 level before volatility drops to its minimum

 

[Skimbleshanks]

Oh yippee, even less volatility to look forward to.

Soon the volatility will mean the only days worth trading on futures will be options expiry days.

 

[madasafish]

Well it is nice to have volatility but your systems should be able to cope with reduced volatility . 5 points on DAx is a profitable trade as is 1 on ES..

 

[stevet]

there are issues with reduced volatility since the spread and your brokerage fee stays the same - your execution costs - but the proft potential of each move reduces

but once that same high volatility comes back in 10 to 20 years, those traders then are gonna find the high volatility difficult to deal with at first as well

the key is to be thankful for any volatility - a few years from now there wont be any volatility at all worth trading off

and by the way - the latter part is what i think and is my opinion - after having been through multiple market cycles and in depth study of stock market cycles since inception, as well as economic cycles going back hundreds and hundreds of years

 

[al-motor]

Blash,

i am not sure if lack of pit trading has reduced the ranges........... I have tracked the dax for the past 2 yrs or so ( the range)- it was fine until about March, when the war broke out. For instance i think for Jan 2003 I have an average of about 100 pts and for Feb 03 about 93 or so........... but since April range has been diminishing.

I think the real reason is that mkt is going up, so gradually it is creeping up, but if it turns down again, then we could see ranges expanding again- Just IMO.........


Al

 

[blash]

By ranges I mean the difference between daily high/low.

The reason I suspect all electronic markets are having an effect, is because any news is almost instantly getting priced into the market so the size of the responding move is going to be smaller but sharper, so the daily high/low is going to be smaller.

But as u say Al-motor looking back since the war the market has still risen considerably but on smaller daily amounts.

So to be profitable, you need to be quick into the position and not expect so many points.

 

[bonsai]

Blash
I have this info if it helps.

for me, this volatility business is a function of the value of the index on the day in question.
So I have the data arranged as a percentage of the closing price.

I find it difficult to conclude that anything out of the ordinary is happening.


But what views do others have looking at the chart ?

E & O E.

 

[Finlayson]

I have sometimes wondered about this as ranges appeared to shrink especially after certain events, but then after much analysing & evaluating of whether this was true & why it would be.......the market would then come back & surprise me, catching me off guard

so I find now best not to even think about it now, just keep targets inside but be aware of your instruments range bound habits so u have an idea of when the bigger moves may be.

electronic trading may have had an influence on the markets movement........I have no idea of whether this may be true or not, but I dont think greed, fear & other influencing factors will change that much & as long as these exist markets should be pretty consistent

Jay

 

[esiotrot]

Just thought I'd post this chart showing the Dow from 1996 to date and the Average True Range for that period. I've smoothed the ATR with 50 period ma.

What sort of conclusions can be drawn I'm not sure, but it certainly illustrates the lower volatility this year.

I looked at this when I was working on some mechanical systems which worked OK from 1998 to 2002 but which showed bad results this year.