|
Roger-
I really appreciate your thoughtful and insightful
response. I have always maintained that in order to use volume
effectively;
one would need to know:
* who is buying, how much, at what price, and
for what reason
Of course you reference BIG trades but the other
elements of the equation are missing; unless you are the one
placing
those trades. (:-) I suppose this is simply
repeating what you have already pointed out; perhaps more eloquently.
(:-)
What led to the demise of Wordon's tick volume was
the premise that an uptick was a buy and a downtick a sell. Well
yes;
but not that simple. Scale trading can be taking place with a large seller getting out on
upticks, etc. Ditto for accumulation
taking place on the books on weakness; and over a
longer period of time with a greater number of orders and for
smaller
quantities.
Chas
----- Original Message -----
Sent: Wednesday, February 02, 2005 11:25
AM
Subject: Re: [RT] PROGRAM TRADING
Hello Charles,
Your point is well taken.
As defined in the weekly report on program
trading in
Barrons, "program trading is the purchase or sale of
at
least 15 different stocks with a total value of
$1 million or more.
Stock-index arbitrage is
defined as the sale or purchase
of
derivatives to profit from the price difference between the basket
and
the derivative." As 90 to 95% of the reported program
trading is not
arbitrage, another way to define it is just BIG
trades. What I think
that tells me is that in many
cases it is just the big hedge funds
making short term large
trades. In other words, the market now has a
much larger
component of short term long and short traders than
it
used to have when most of the large institutional traders
were mutual
funds that were longer term (to some extent) traders that
mostly only
traded on the long side.
Another place this shows
up is in the NY advancing and declining issues.
Most everyone is
familiar with the Odd Ball system which bought based
on an
increase in advancing issues and sold based on a decrease
in
advancing issues. If you have followed
this system, you are aware
that the use of advancing issues to signal
market direction failed as
a successful
indicator around April of 2003 and has not
worked
since. That says to me that a lot of the increases in intraday
volume
are caused by these big traders and their trading is
concentrated in
only a few stocks as opposed to being
spread
across the entire market population which,
would be the case if the
majority of the activity was coming from retail
traders.
My conclusion from all of this is that since April of 2003 we
have had
a major portion of the daily trading
volume coming from very large
short term traders (Hedge Funds)
and that their style and methods of
trading are
different. Therefore the use of volume changes as
an
predictor of price changes can only be done if you
understand their
trading style and methods and have some way to determine
when they are
stomping around in the market. Can't say that I
have that answer but
maybe some day I'll figure it out.
--
Best
regards,
Roger
mailto:mailrs@xxxxxxxxxx
Wednesday,
February 2, 2005, 8:55:59 AM, you wrote:
CM> Group-
CM> 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
CM> 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
CM> 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
CM> 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?
CM> To
further complicate matters (if it is necessary to do so; but I am getting
ahead of myself here) of all program trading;
CM> only 10% is the index
arb variety where stocks are sold; and futures are bought simultaneously; and
vice versa. However;
CM> there are OTHER and perhaps MORE
IMPORTANT types of program trading strategies which must impact the
analysis
CM> 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
CM> 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
CM>
the correct strategy would be to fade a sell program by buying into the market
at those levels and times.
CM> Daytrading impact aside; is there a
way to modify volume based indicators which would provide a clearer
representation
CM> of pure supply/demand market generated information
for the purposes of swing and end of day trading? If someone
could
CM> 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.
CM> If you have been with me this far;
thank you for your time and attention; and any feedback.
CM>
Chas
CM> for by program trading
------------------------ Yahoo! Groups Sponsor
--------------------~-->
What would our lives be like without music,
dance, and theater?
Donate or volunteer in the arts today at Network for
Good!
http://us.click.yahoo.com/Tcy2bD/SOnJAA/cosFAA/zMEolB/TM
--------------------------------------------------------------------~->
Yahoo! Groups Links
<*> To visit your group on
the web, go to:
http://groups.yahoo.com/group/realtraders/
<*>
To unsubscribe from this group, send an email to:
realtraders-unsubscribe@xxxxxxxxxxxxxxx
<*>
Your use of Yahoo! Groups is subject to:
http://docs.yahoo.com/info/terms/
--
Internal Virus Database is out-of-date.
Checked by AVG
Anti-Virus.
Version: 7.0.300 / Virus Database: 265.6.13 - Release Date:
1/16/2005
Yahoo! Groups Links
|