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Pure volume has very little meaning for the reasons you state. In stocks it has been quite some time since you could get genuine directional volume data. It's worse in derivates where probably two thirds of the trading is hedge relayed. Some people try to filter back to public only, but that data is rarely realtime.
-----Original Message-----
From: Charles Meyer [mailto:chaze@xxxxxxxx]
Sent: Wed 2/2/2005 9:55 AM
To: REAL TRADERS
Subject: [RT] PROGRAM TRADING
Group-
I was wondering if I can get some feedback on the subject of program trading; as it relates to volume analysis. I've been doing a lot of studying on this subject and here's the issue. In the old days; total volume of shares traded was just that; insofaras it accounted for all the exchange trading. Today; end of day volume of shares traded on both the NYSE and the NASDAQ is greatly influenced by program trading. It is said to account for about an estimated 50% of all volume. Stated simply; program trading greatly influences total volume. Now; it seems to me this has to greatly impact the INTERPRETATION OF VOLUME BASED INDICATORS; because we are no longer seeing the pure forces of supply and demand as in the days when program trading didn't exist?
To further complicate matters (if it is necessary to do so; but I am getting ahead of myself here) of all program trading;
only 10% is the index arb variety where stocks are sold; and futures are bought simultaneously; and vice versa. However;
there are OTHER and perhaps MORE IMPORTANT types of program trading strategies which must impact the analysis
of supply and demand vis a via volume based indicators? If I may provide an example. Last Friday sell programs drove the Dow down about 50-points when sell price levels were hit and program trading came into the market. For DAYTRADING purposes this was valuable information since one could have front run these orders on the short side. However; on some days one would lose money and the correct strategy would be to fade a sell program by buying into the market at those levels and times.
Daytrading impact aside; is there a way to modify volume based indicators which would provide a clearer representation
of pure supply/demand market generated information for the purposes of swing and end of day trading? If someone could
please share their experiences and there are no answers to this dilema; it will at least save me a lot of wasted time and energy trodding a worthless path.
If you have been with me this far; thank you for your time and attention; and any feedback.
Chas
for by program trading
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