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This is a useful and interesting thread . A couple of observations.
I think it is true to say, at least of the US markets, that the biggest
participants in the stock market nearly always use the equivalent of limit
orders. The aim of an institutional investor, investment bank or other big
player, is to move around large amounts of stock while minimizing market
impact, to get in or out of big long or short positions with the smallest
possible move in price. They will typically do this with daily orders to buy
or sell up to a certain number of shares up (or down) to a certain limit
price. At market orders in big size from large investors are more likely a
sign of panic.
Volume is a great example of how markets are anything but perfect.
Theoretically, in a relatively liquid stock, large price movements on low
volume shouldn't happen. As soon as the price moves away from the market's
collective equilibrium fair value, then the difference should be arbitraged
out immediately. If investors representing a small volume of shares change
their view of value, then the price should only move by the amount of that
value change divided by the % of the float represented by those
shareholders. The reality is that the market in most issues is just not that
efficient. Many investors work with specific buy/sell targets, and won't act
until those targets (often at round number prices) are hit. Others have
technical price targets (e.g. channel breakouts) and won't act until those
are hit. Therefore many stocks spend time trading in "dead zones" where
price moves may not be supported by volume, and will often drift with the
general market. The drift continues until such time as the cumulative
collective view of value has diverged sufficiently from price that (often
with some data or market change as a trigger) there will be a move away from
that drift range that itself attracts a lot of participants, and you get a
high volume breakout.
The other patterns that are visible follow from paragraph 1 - periods of
institutional accumulation and distribution, as the big players try to move
large amounts of stock without moving the market.
The problem still remains that it is hard to identify what is happening to
create volume on a particular day. So on a high volume day without much
price movement, is that a big seller moving stock that is being absorbed by
a lot of retail interest? Or a big buyer taking advantage of someone else's
need to sell for tax purposes? And does it matter, given that the fact that
the price didn't move implies that buying and selling pressures were equal,
at the end of the day?
I think it does matter, but not in the way that seems intuitive to many. I
think trying to identify "more buyers than sellers" or vice versa is a
quixotic quest that is unlikely to lead anywhere. But volume gives very
important clues. So a big volume day with no price movement is likely to
create or emphasize an area of support or resistance. The high volume
indicates that a lot of people have a vested interest at that price level. A
period of time of gradual price movement on relatively heavy volume may
indicate institutional activity, a longer term tussle between different
value positions, that eventually will likely lead to a bigger move in price
when one side runs out of ammunition.
And then there are the occasions when price moves very quickly on some piece
of news that then causes all interested parties to adjust their value
targets, creating significant volume and volatility until a new equilibrium
is reached.
The problem with many volume indicators is that they try to slice and dice
the volume/price activity to identify certain types of investor behavior
that in many cases are effectively unknowable. But they can provide big
traps for the unwary technical analyst or system developer in that they can
react in unexpected ways. Find a big spike day, with a gap at the open and a
big move that reverses itself in the course of the day. A volume indicator
that works on intraday price changes (e.g. OBV) will give you an opposite
reading from one that is based on interday (e.g. CMF).
I hope this may be useful. Sorry for the long post. I've been working up an
article on these issues so my thoughts are running in this direction right
now.
Andrew
-----Original Message-----
From: Vignesh Eswar [mailto:vignesh@xxxxxxxxxxxxxxx]
Sent: Monday, July 12, 2004 4:12 AM
To: equismetastock@xxxxxxxxxxxxxxx
Subject: RE: [EquisMetaStock Group] Question on color coding price & volumn
Folks, Read below 8-)
Regards,
Vignesh Eswar
Trade Well. Trade Wise.
-----Original Message-----
From: Andrew Tomlinson [mailto:andrew_tomlinson@xxxxxxxxxxx]
Sent: Monday, July 05, 2004 7:52 PM
To: equismetastock@xxxxxxxxxxxxxxx
Subject: RE: [EquisMetaStock Group] Question on color coding price & volumn
Vignesh
There are a couple of issues.
Buys = Sells. If they don't then the exchange shut down trading in the
security. The function of the market maker is to adjust price until supply
meets demand.
BUYS=SELLS. One of the fundamental truths of the market. Issue is to 'take a
view' or 'estimate' who is stronger. One intuitive way of doing this seems
to me that a buyer who hits the seller's offer rate is carrying more
conviction of a immediate move up in prices as against a buyer who puts a
limit order and waits for a seller to hit his bid. And vice versa. If there
is a upwards surge in the market it can only come on account of buyers
taking all that is offered for a the length of the move. An surge can never
happen through limit orders.
Blocks are a complex issue - among other problems, some of the biggest
blocks change hands off-shore or in some other fashion off-exchange, so the
numbers don't necessarily appear in the exchange's volume numbers.
Very true. Off market deals never show up in the traded volumes. But
Securities Exchange Bureau of India (SEBI, India's equivalent to the SEC)
has a stipulation that off market deals beyond a threshold value need to be
reported. When that is done the volumes are adjusted for the trade and there
is a sudden surge in the volume reading. But its unlikely that any market
watcher is able to actually spot and trade that move. This happened recently
in the case of ONGC and earlier in ICICI Bank. Also block deal numbers are
not reported officially. We do not get a daily number. This is just one more
of the many limitations in market data available to traders of the Indian
market. Hats off to them to make such a good go of it despite this!
Volume indicators can still be useful, but be aware of their limitations. In
many ways price itself is the best volume indicator, as the price is what
adjusts if buying pressure is greater than selling pressure.
True. But a 'trend' in volumes traded that are not in consonance with the
price movement (as against sudden spikes with little follow through on the
next few days) act as more reliable indicators that say a divergence in an
oscillator. After price, I put most of my faith in volumes. Which is why I
tend to lean heavily on Elliot wave analysis (which only looks back at the
volume panel in the passing 8-)) for studying currency crosses and bullion
spot as we don't get volume data for these at all!!
Dush, My data vendor is spider software India. I use their intraday trading
package called IRIS for NSE feeds. They also iffer BSe feeds. I recommend it
strongly to those who are looking to chart Indian markets live. Use my
reference if you are interested.
http://www.spidersoftwareindia.com <http://www.spidersoftwareindia.com/>
Thanks guys. It gives me great pleasure to be in a position to give back
something (even if it's a point of view!) to some of the most clued on
people on this group, dush, Larsen, lionel, super frag and you, ofcourse!
Andrew
-----Original Message-----
From: Vignesh Eswar [mailto:vignesh@xxxxxxxxxxxxxxx]
Sent: Friday, July 02, 2004 2:18 AM
To: equismetastock@xxxxxxxxxxxxxxx
Subject: RE: [EquisMetaStock Group] Question on color coding price & volumn
Andrew/ Dusant,
from a layman's point of view it seems pretty simple. If the data provider
gives out every trade as a price and volume at a time, than all that needs
to be done is to flag each trade as a hit on a bid or offer. Then cumulating
them becomes a simple matter. The rest follows. Catching Block trades is
just a simple matter of running a filter which flags trades with tick volume
greater than whatever limit u set. I use a proprietary live feed.which is
net based..but they provide data only for the Indian markets .so I wonder if
you would be interested. Dusant ?
Regards,
Vignesh Eswar
Trade Well. Trade Wise.
-----Original Message-----
From: Andrew Tomlinson [mailto:andrew_tomlinson@xxxxxxxxxxx]
Sent: Thursday, July 01, 2004 9:25 AM
To: equismetastock@xxxxxxxxxxxxxxx
Subject: RE: [EquisMetaStock Group] Question on color coding price & volumn
Sounds great Vignesh. I guess the question is, whether the data provider can
distinguish bids and offers from end customers vs. market makers and can
include block trades. What data have you used and are you satisfied on
these points?
Andrew
-----Original Message-----
From: Dusant [mailto:dusant@xxxxxxxxxxxxxxxxxx]
Sent: Wednesday, June 30, 2004 11:10 PM
To: equismetastock@xxxxxxxxxxxxxxx
Subject: Re: [EquisMetaStock Group] Question on color coding price & volumn
Great idea, Vignesh.
Provided the data vendor supports the bid/ask/volume data. Dusant Chief
Architect http://www.candlestrength.com/
----- Original Message -----
From: Vignesh Eswar <mailto:vignesh@xxxxxxxxxxxxxxx>
To: equismetastock@xxxxxxxxxxxxxxx
Sent: Wednesday, June 30, 2004 4:53 PM
Subject: RE: [EquisMetaStock Group] Question on color coding price &
volumn
Mr. Tomlinson / superfragilistic,
There is one logical way to separate the buying volume from the
selling volume. We assume that if the offer is taken then it constitutes a
buy and if the bid is given then it constitutes a sell. There is a counter
running that cumulates the volumes on the bid and on the offer. One usually
gets a very good indication of what the dominant pressure is and where there
is a pressure shift by plotting the difference of these two running totals.
This is also great for picking up accumulation and distribution days when a
divergence occurs. Price goes up on net negative volume (volume at bids are
greater) on a distribution day and vice versa. Obviously this works only on
intraday data with tick volume. My two bits for what its worth. Hope it
helps.
Best Regards,
Vignesh Eswar
-----Original Message-----
From: Andrew Tomlinson [mailto:andrew_tomlinson@xxxxxxxxxxx]
Sent: Thursday, June 17, 2004 1:57 AM
To: equismetastock@xxxxxxxxxxxxxxx
Subject: RE: [EquisMetaStock Group] Question on color coding price &
volumn
Superfragalist
No offense taken, particularly as I have only just understood the
point you
are trying to make (my slowness, not yours). Actually I'm still a
little
confused - as there is a buyer and a seller to every trade, how can
you
separate out the volume associated with buys from that associated with
sells? The only thing close that I can think of are the indicators
that try
to allocate volume according to the nature of the price move, like
Chaiken
Money Flow, or which track the size of trades on up or down ticks,
like
Birinyi's Money Flow Index, so as to try to take a guess at separating
customer from dealer volume. What am I missing?
Andrew
-----Original Message-----
From: superfragalist [mailto:no_reply@xxxxxxxxxxxxxxx]
Sent: Wednesday, June 16, 2004 12:04 PM
To: equismetastock@xxxxxxxxxxxxxxx
Subject: Re: [EquisMetaStock Group] Question on color coding price &
volumn
Andrew
I don't mean to be obstinate. I understand from your post you're
using this as a visual aid. However, it's a misleading visual aid
that most of the newbie's aren't going to understand. They are going
to think that they are looking at a volume bar that is totally made
up of the volume that was up or down. The formula is passed around
without an explanation as if it's a way around something that should
have been done in MS to begin with.
You may be able to keep the meaning of this visual aid straight in
your mind, but most people can't. They see those red bars and those
green bars and they think down or up, not total volume with some of
the volume up and some down.
The only volume that is given in MS is total volume. That needs to be
made clear to newbie's. There's no way around using total volume and
total volume is not up or down volume, it is both added together.
In the example I gave regarding the NYSE, you'll find many days where
the up volume is higher than the down volume but the price of a
tracking stock like the SPY (closet thing we have to a tracking
stock- -you
could use the index) still declined.
There are services that provide up and down volume for each symbol,
but you have to use an additional program running with MS, which
means you can't incorporate the numbers into MS for analysis, unless
you export them to excel and import then into MS daily.
--- In equismetastock@xxxxxxxxxxxxxxx, "Andrew Tomlinson"
<andrew_tomlinson@xxxx> wrote:
>
> Guys
>
> As I understood the enquiry, and as I use this color-coded volume
indicator,
> the intent is simply to provide an easier visual appreciation of
whether the
> periodic price movement is supported by volume. In particular, was a
> particular day an accumulation day (higher price on heavier
volume)
or a
> distribution day (lower price on heavier volume). This is how
Investor's
> Business Daily presents its charts in the newspaper and on its
website, for
> example.
>
> No new information is provided. It's just a visual aid. The height
of the
> histogram bars still give you periodic volume. We're just coloring
the bars
> to include some price information.
>
> I use the following for a distribution day:
>
> If(C<Ref(C,-1) AND V>Ref(V,-1),V,0), which I color as a thicker red
> histogram bar.
>
> You could make it more discriminating by referring to average
volume rather
> than yesterday's figure. Also if you want to do this for the indices
> (NASDAQ, S&P500) you have to use the security function for the price
> reference, or use the appropriate ETF as a proxy.
>
> Andrew
>
> -----Original Message-----
> From: praktikus_ms [mailto:praktikus@x...]
> Sent: Wednesday, June 16, 2004 4:20 AM
> To: equismetastock@xxxxxxxxxxxxxxx
> Subject: Re: [EquisMetaStock Group] Question on color coding price
& volumn
>
>
> Andrew,
>
> If you look at up and down days (what is related to prices) and you
> are coloring volumebars according to this up and down days, the
> source of the colored bars is related to the price action and not
to
> the volume. If our data supliers would provide more than just plain
> volume, perhaps something like volume ticking up/down we would have
> another source for color coding by volume. By now coloring volume
not
> related to price action is limited to comparing it to the volume
info
> as a whole.
>
> Martin
>
>
>
> --- In equismetastock@xxxxxxxxxxxxxxx, "Andrew Tomlinson"
> <andrew_tomlinson@xxxx> wrote:
> > "That formula is simply price dependent volume which means if the
> > price goes up that bar, it is assumed the volume must be
positive.
> > That relationship is ify at best. So all your getting is your
price
> > line (c) repeated in colored bars."
> >
> > Actually, no. The formula gives you a volume histogram, colored
> according to
> > whether the price is up or down. It gives you volume, not price.
>
>
>
>
>
>
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