Feb

2

Volume, from Jim Sogi

February 2, 2010 |

Interesting drop in volume on today's up move in ES:

2010-02-01, 1896011
2010-01-29, 3068079
2010-01-28, 3052088
2010-01-27, 2634603
2010-01-26, 2449263
2010-01-25, 2080292

The old TA theory is that an up move on low volume is weak, and a down move on increasing volume is strong, but it doesn't prove out scientifically.

Sushil Kedia comments:

A homegrown theory I developed borrowing on the Chair's applications of the concept of struggle to markets interprets volume as a struggle for price discovery. Extending this with memetics, a higher volume indicating a higher struggle for price discovery meme implies an ongoing persistence of the meme. So, within any time frames or patterns or noise, if you perceive a meme then interpreting lower volume as lesser struggle tilting towards consonance and thus implying a fading meme comes by. This way of looking at price and volume relationships does lead to several testable ideas getting the gut feel closer to science.

Bill Rafter writes:

The only use we have found for volume is as a surrogate metric for volatility. Indeed S&P volume and VIX have very interesting relationships. However the standard TA mantras that  (a) volume “confirms” price and (b) volume-weighting indicators makes them better, have not been confirmable.

Here is an excellent graphic I prepared relevant to volume.

Dr. Rafter is President of Mathematical Investment Decisions, a quantitative research consultancy

Kim Zussman writes:

Here's another check. SPY daily returns (c-c), with volume traded, 1993-present, were used to check for big up days = >+1% (0.01). Then calculated relative volume (RV) as:

(today's volume) / (average volume prior 5 days)

Then compared next day's return for two cases; if it followed a big up day which had low RV (RV<0.8) or a big up with high RV (RV>1.3):

t-Test: Two-Sample Assuming Equal Variances

                       low RV      hi RV
Mean               0.0010    -0.0015
Variance          0.0002    0.0002
Observations        151    146

Pooled Variance    0.0002
Hypothesized Mean Difference    0.0000
df    295
t Stat    1.5263
P(T<=t) one-tail    0.0640
t Critical one-tail    1.6500
P(T<=t) two-tail    0.1280
t Critical two-tail    1.9680


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2 Comments so far

  1. Adam Kretschmann on February 2, 2010 2:53 pm

    Date updated:08-21-2009

    BUY: if a stock has 50% higher than normal volume AND its up 1% on the day. Buy at the open the next morning (we will have triggers every day in System Trades of the Day and in the Unusual Volume list on Today’s Lists).

    SELL: if the stock is up 2 days in a row, sell at the open the next day. Note that you could own the stock then for only one day.

    To the left are some sample stocks that have worked well in the system.

    Results:

    Since 1997 there’s been 8821 occurrences on the Nasdaq 100 stocks. 5771 successes for a 65% success rate. Average return of 1.1% per trade. Average holding period of 3.98 days.

    http://www.stockpickr.com/analysis/Unusual-Volume-System/

  2. Terry Lesniak on February 2, 2010 5:36 pm

    Market Profile with MarketDelta on an intraday basis can certainly give volume (and price plus time) a contextual basis to boost anyone's "edge"… whether or not it is "scientifically proven" I suppose would be a function of a trader's skillset. Terry

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