Sep

16

 I was recently on a ski mountaineering trip in the high glaciers of New Zealand. New Zealand has large storms coming in from the Tasman sea which hit the mountains and deposit snow and the wind blows hard. This creates avalanche conditions which can be very dangerous. One of the methods, among many others, is to use what is called a Compression Test. It involves digging a pit in the snow on a steep hill and isolating a column of snow about 25 cm square for the depth of the snow. One smoothes the edges and feels the snow to see where the layers of snow and the different types of snow. There might be layers of ice buried if it rained. There might be loose sugar snow if it is old and cold. There might be hard layers of wind packed snow. One taps the top of the column with progressively harder taps, ten from the wrist, ten from the elbow and ten from the shoulder. If the column breaks away and slide from a certain layer, one knows, depending on the amount of taps, and the energy from the break how strong the snow is at that particular location. One uses that information to make forecasts of weaknesses in the snowpack and the likelihood of an avalanche.

As I performed these tests, I wondered why one could not use the time and sales data to examine the strength of the market at those particular times. Some markets execute thinly with few sales at a particular price, others are thick with sales, at a fast rate. One can also look at how the market executed. One could probably make some hypotheses as to the strength of the market at those prices and the possibility of collapse or avalanche. One presumably wants to avoid being in a market avalanche. In Reminiscences of a Stock Operator, a tipster goes to the big time trader with a tip to buy. The trader tells his broker to sell a few hundred, then to sell a few hundred more. The tipster asked, wait, I thought I told you to buy. Yes, says the Commodore, I just wanted to test the market and see how it would take my offers.


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