Volume tells all

[ljyoung]

re: A really long time ago I came across a method of integrating price and volume used by late IC correspondent Eustace Storey. Ive never followed it up but would like to ask if anyone else has heard of it?
Stephen

The first entry of a GOOG search on Eustace Storey provides a link to what, on first impression, appears to be a site which might prove of utility to you and others interested in Mr. Storey's methodology.
ljey

 

[Splitlink]

Eustace Storey's battered book on price plus volume is still on my bookshelf. I doubt whether it would work today because he used bargains, not volume, didn't he? Although they are associated. I used to get the FTSE bargains from the FT but they removed that information years ago. Just shows how old I am!

The argument was that a trader investing in one bargain of 500 pounds had the same fears about it as one of 10000 pounds because each trader was trading according to his means. Therefore, bargain size was of less importance than the number of them.

Interesting argument and I used it for many years whle the information was available. In the end, it became the only reason I bought the FT..

I still have a handwritten letter from him, explaining a query about his book. They were more tranquil times!

I have tried to obtain bargains figures from other sources but have given up. Some data companies give the five largest etc., but the system needs the totals. One has to learn to adapt to new times.

Split

 

[alan5616]

VSA Trader,

When I read your original post, a few weeks ago, I thought that it was nonsense, having seen markets move in the opposite direction to the bid or ask volume traded.

This point of view evolved based on volumes that were reported via my data feed. I have an account with IB, which enables me to receive real time data for, effectively, nothing. I have never doubted their ability to accurately report, not only price but, volume of contracts traded at that price and specified time. I accepted, without question, that all the data they transmitted was accurate.

Last Friday, I had reason to speak with a contact who receives data from two of the major real time data feed companies. He uses volume as an integral part of his trading set ups. I was shocked to learn that, although their reported volumes were almost identical, my IB volume was totally out of sync with them. We compared our data over several 5 minute bars. On one bar, in particular, there were 800+ contracts traded but, according to IB, there were 6,500. It looks as though they are accumulating their volumes and then pushing them through in chunks.

From today, I will start a week's free trial with one of the independent data vendors as I would like to incorporate volume into the process of making my day trading decisions.

My apologies for rubbishing your earlier post.

rgds

Alan

I wonder how many of you use Mathmatical formulas and then give up as they never seem to work? Have you ever thought of studying volume as a leading indicator?

In the good days when the markets were easier to read, did the tape worms turn their head from the ticker tape to perform some calculation based on maths? I have never heard of it, so why do you?

Have you ever wondered why? when you click a buy or sell order that you create volume, yet you never watch volume?

Volume is the key to activity, the balance of supply and demand, intrest and no intrest.

I shake my head in wonderment.

 

[bracke]

re: A really long time ago I came across a method of integrating price and volume used by late IC correspondent Eustace Storey. Ive never followed it up but would like to ask if anyone else has heard of it?
Stephen

The first entry of a GOOG search on Eustace Storey provides a link to what, on first impression, appears to be a site which might prove of utility to you and others interested in Mr. Storey's methodology.
ljey

My interest in price/ volume prompted a poster on another thread to suggest that I read the Storey book. The book is a collection of articles written, I think, for The Times.

I obtained the book via my local library from the British Library. Although the book is dated in its presentation I still found it of interest.

I think that there is more up to date information available presented in a better manner but the book is still worth a read.

Regards

bracke

 

[ljyoung]

Last Friday, I had reason to speak with a contact who receives data from two of the major real time data feed companies. He uses volume as an integral part of his trading set ups. I was shocked to learn that, although their reported volumes were almost identical, my IB volume was totally out of sync with them. We compared our data over several 5 minute bars. On one bar, in particular, there were 800+ contracts traded but, according to IB, there were 6,500. It looks as though they are accumulating their volumes and then pushing them through in chunks.

A general question:
Does anyone have a view as to how important the discrepancies pointed out in the above excerpt of a post by alan5616 are with respect to making trading decisions where volume considerations are deemed to be important? I also have observed this sort of "bundling" by IB. Clearly the time frame one is trading in, i.e., with a longer bar period (let's say a 5m v a 1m bar) the incongruities between IB's data and that from a DA source would be minimized. Is the probe (volume in this case) sensitive enough that in the shorter time frame a factor of 7-8 really makes that much difference? Is it better then to just be very cautious when one uses volume data at short time intervals?
Please understand that I'm not trying to argue with alan5616 about whether his concern is justified but rather just trying to get a feel from people about how problematic IB's cost-saving, bundling activities are. My guess would be that the practice is not peculiar to IB but they happen to be the company that two members of the group have independently observed this behaviour in.

ljey

 

[alan5616]

Since making my original post, I have now subscribed to a data feed with one of the independent data vendors.

I use a trading strategy, in which bid/ask volume is an integral part of the methodology. For example, reversals occur when market sentiment changes. One of the key indicators, that a reversal may be under way, is a change in the balance of buying and selling volume. This is, also, an element in assessing whether a break out will be faded or push through to be a sustained break out.

I have only been using the other data feed for a few days but, the difference between this and IB is quite apparent already. My win % has gone into orbit (or feels like it). The analogy that comes to mind is "getting off a bicycle into a car".

 

[VSATrader]

VSA Trader,

When I read your original post, a few weeks ago, I thought that it was nonsense, having seen markets move in the opposite direction to the bid or ask volume traded.

This point of view evolved based on volumes that were reported via my data feed. I have an account with IB, which enables me to receive real time data for, effectively, nothing. I have never doubted their ability to accurately report, not only price but, volume of contracts traded at that price and specified time. I accepted, without question, that all the data they transmitted was accurate.

Last Friday, I had reason to speak with a contact who receives data from two of the major real time data feed companies. He uses volume as an integral part of his trading set ups. I was shocked to learn that, although their reported volumes were almost identical, my IB volume was totally out of sync with them. We compared our data over several 5 minute bars. On one bar, in particular, there were 800+ contracts traded but, according to IB, there were 6,500. It looks as though they are accumulating their volumes and then pushing them through in chunks.

From today, I will start a week's free trial with one of the independent data vendors as I would like to incorporate volume into the process of making my day trading decisions.

My apologies for rubbishing your earlier post.

rgds

Alan

Hi Alan;

I am glad that you have come to your senses. There is an old saying, 'If you get something for nothing, then that is usually what it is worth' It is worth paying for a datafeed, the more reliable the better. I now trade Forex using volume and price only, and now that I have managed to separate the different data vendor quotes, I find I am able to read the data much more clearly, and because the FX market is the largest and most liquid, it is the clearest to read using tick volume, and if you don't believe me, then look at the chart. This is my setup and it works very well. If you look at the chart, and you have Tom's book, you will see that after the high volume bars, you get 'Tests' or 'No demand' indicated by the white arrow. The low volume up or down bars are usually followed by a move in the opposite direction, for example, if it is a down bar with a narrow spread, after a down bar on high volume, it is followed by an up move. This is all I look for, and it's very simple AND makes me money.

Regards VSATrader

 

[ljyoung]

As best my ever-diminishing grey matter can ascertain, the lack of response from the "old salts" (in his book "Jarhead", Tony Swopport defines an old salt in the USMC as: "... those 22-23 year olds.") plus the input from alan and VSATrader, a consensus view might be that volume data from the retail broker crowd is suspect at best. Too bad, although not surprising. I had a similar experience a few years ago when I observed that the OP (opening price) was highly variable from vendor to vendor (and in some cases from time bar to time bar for a single vendor)and had absolutely nothing to with the NOOP (Nasdaq Official Opening Price). So off to find me a reliable DA provider, a decision based on finding out what is going on and acting appropriately. What else can one do.

One thing - a note for newbies to the board and more generally to trading:
DON'T TRUST THE DATA FEED FROM YOUR FRIENDLY, INEXPENSIVE RETAIL BROKER.

One more thing - while it remains a matter of opinion as to whether volume tells all, if the raw volume data is incorrect, then volume don't tell jack.

ljey

 

[VSATrader]

Since making my original post, I have now subscribed to a data feed with one of the independent data vendors.

I use a trading strategy, in which bid/ask volume is an integral part of the methodology. For example, reversals occur when market sentiment changes. One of the key indicators, that a reversal may be under way, is a change in the balance of buying and selling volume. This is, also, an element in assessing whether a break out will be faded or push through to be a sustained break out.

I have only been using the other data feed for a few days but, the difference between this and IB is quite apparent already. My win % has gone into orbit (or feels like it). The analogy that comes to mind is "getting off a bicycle into a car".

Hi Alan;

I suggest to you that you only look at last traded price and last traded volume, unless you look at level 2 and place your orders just before the blocks on the bid/offer. You will be mislead and lose money. Try to plot on to a chart the last price/volume and start there.


Regards VSATrader

 

[alan5616]

VSA Trader. Thanks for the advice.

I'm not sure whether I am in agreement with you on this or, whether I am misinterpreting your post. I pay no attention to what is happening in the DOM; too much spoofing, cancelled orders etc.

Obviously, a lot of the information which I gathered, via IB's data feed, has been erroneous. However, I'm sufficiently confident in the new data feed, confirmed by recent results, to stick with the strategy that I have developed. I know that I have only been using this data feed for a few days but, back testing has been encouraging too.

 

[TopIQ]

Big volume should be accompanied by Big price movement. May's trend change on the FTSE100 was on below average volume overall, but sector volume would have been higher in the selling issues. Market makers move prices around to draw in buyers and sellers, which is why candlesticks often show spikes at tops and bottoms. Price is king!

 

[Eagles soar]

I don't look at the volume indicator as here is why. In order for you to sell your shares someone on the other side has to be buying. I don't think volume tells you the whole picture as you really do not know what is going on. I'm aware of how much emphasis is placed on volume but I'm not sold on it and so never pay any attention to it.

Might sound crazy for many but really how do you no what is really happening based on volume? Then again I could be very wrong in my assumption but volume has zero impact on my stock selections...

 

[Charlton]

Volume needs to be studied in conjunction with effect on price

I don't look at the volume indicator as here is why. In order for you to sell your shares someone on the other side has to be buying.

Correct - all market transactions are two-sided zero-sum. The factor that can inform your trading decisions, your entry and exit points is who is on the other side of the transaction. Is it professional money or is it weak hands like retail traders and the average Joe Bloggs.

I don't think volume tells you the whole picture as you really do not know what is going on. I'm aware of how much emphasis is placed on volume but I'm not sold on it and so never pay any attention to it.

Volume figures in their own right are irrelevant, but volume in relation to other recent volume bars inidcates the level of professional activity. If the volume bar is low then professionals are not really interested in taking part and this raises the question why ? Only professionals have the ability to create instantly hugh volume spikes. Professionals never stay in a position if they turn out to be wrong, unlike mr average who hangs in there expecting a reversal in their fortunes.

Might sound crazy for many but really how do you no what is really happening based on volume? Then again I could be very wrong in my assumption but volume has zero impact on my stock selections...

It requires interpretation to know what is happening. This requires examining how price has reacted to the volume i.e. level of activity. This requires looking at the spread of the bar and also where the close lies within the bar. I won't go into that here because I cannot do it justice in a short reply.

However just ask yourself the question, when professionals want to buy large volumes of shares for their client how do they do it without altering price against themselves. These are the clues we look for in the volume and price bar relationships.

I grant you that it may not be easy to many traders to see the true picture.

Charlton

 

[Tapewormtoo]

yep volume is what gas is to car engine. The professionals have the deep pockets to push the gas pedal. We have open..high..low..close..spread..vol. Why toss out what OHLC were made on i.e. vol. It tells how they were made and gives indications of the perspective of those who are privy to more info than you or I have.

 

[dbphoenix]

If the volume bar is low then professionals are not really interested in taking part and this raises the question why ?

This is repeated quite a lot, but it's not true. Whether volume is "high" or "low" is no indication of whether the transactions are professional or not. Professionals avoid calling attention to themselves whenever possible. To wave a flag and shout I'm Buying Now would not be in their best interests.

It requires interpretation to know what is happening. This requires examining how price has reacted to the volume i.e. level of activity. This requires looking at the spread of the bar and also where the close lies within the bar. I won't go into that here because I cannot do it justice in a short reply.

Again, not true, so far as it goes. What matters is the relationship of price movement to the changes in buying and selling pressure. This has nothing to do with "bars". Traders don't trade bars. Or ticks. They trade price. And they do it by trading shares, or contracts. How one chooses to display their transactions is entirely up to the trader, but price couldn't care less.

 

[Charlton]

Trading bars indeed !!

Again, not true, so far as it goes. What matters is the relationship of price movement to the changes in buying and selling pressure. This has nothing to do with "bars". Traders don't trade bars. Or ticks. They trade price. And they do it by trading shares, or contracts. How one chooses to display their transactions is entirely up to the trader, but price couldn't care less.

Who said they trade bars ? - I certainly never said that. It's obvious that they trade the instrument. It's also obvious that a bar is a summarised representation of what has happened over a period of time, be it 1 min, 1 day or whatever, but we have to work with the few tools and signs that we have available to us.

You really must resist twisting peoples' words around in your pedantic manner - trading bars indeed !! Perhaps it would be true for gold !

 

[dbphoenix]

Who said they trade bars ? - I certainly never said that. It's obvious that they trade the instrument. It's also obvious that a bar is a summarised representation of what has happened over a period of time, be it 1 min, 1 day or whatever, but we have to work with the few tools and signs that we have available to us.

If one is "required", as you say, to look at the spread of the bar and the close of the bar and the height of the bar, it can be assumed that one is doing so in order to make some sort of trading decision.

And, yes, a bar is a representation of what has happened over time. But traders don't trade time; they trade price. Using bars based on time intervals is an elective, not a required.

 

[Charlton]

If one is "required", as you say, to look at the spread of the bar and the close of the bar and the height of the bar, it can be assumed that one is doing so in order to make some sort of trading decision.

And, yes, a bar is a representation of what has happened over time. But traders don't trade time; they trade price. Using bars based on time intervals is an elective, not a required.

You are being pedantic again. I don't "require" you or anyone else to do anything.

Eagles Soar asked "but really how do you no what is really happening based on volume?".

My reply told him that if you are going to use volume then it requires that you perform certain types of analysis. I am not commanding him to do this if he chooses not to use volume, but then this is a thread called Price and Volume.

Frankly I am getting fed up with you trailing myself and others dishing out your pendantry, such that we all have to watch every single word or nuance just in case you decide to jump on the band-wagon.

Charlton

 

[dbphoenix]

You are being pedantic again. I don't "require" you or anyone else to do anything.

Eagles Soar asked "but really how do you no what is really happening based on volume?".

My reply told him that if you are going to use volume then it requires that you perform certain types of analysis. I am not commanding him to do this if he chooses not to use volume, but then this is a thread called Price and Volume.

Frankly I am getting fed up with you trailing myself and others dishing out your pendantry, such that we all have to watch every single word or nuance just in case you decide to jump on the band-wagon.

Charlton

"Require" is your word, Charlton. I'm merely pointing out that one is not required to engage in the sort of analysis you say is required in order to understand the relationship between price and trading activity. You may call it pedantry if you like, but that doesn't make it any less true.

Relax.

 

[Charlton]

"Require" is your word, Charlton. I'm merely pointing out that one is not required to engage in the sort of analysis you say is required in order to understand the relationship between price and trading activity. You may call it pedantry if you like, but that doesn't make it any less true.

Relax.

And it doesn't make any more true