Volume Analysis

[rubysglory]

Come across this article in bi-monthly trading magazine called Your Trading Edge. Thought others may find interest in it and perhaps another insight on use of WOM indicators.

“I will refer to just one, a study in 2000 by Lee and Swaminathan entitled ‘Price Momentum and Trading Volume’. The study examined all stocks on the NYSE and AMEX between January 1965 and December 1995. The authors found that the relationship between momentum and volume is not as straight forward as the supporters of technical analysis would have us believe. They found that for rising stocks, early momentum is accompanied ny low volume and that higher volume was associated with the end of the rally. Buying a rising stock when the volume increased was likely to be a losing strategy. For falling shares, the opposite was true. Higher volume tended to accompany the start of a fall. Increasing volume usually meant the end of the move.”


rg

[Euler]

The problem you face on a racing market is that all the volume is skewed heavily to the favourite so that makes it difficult to interpret. Volume spikes at the end of the trading range can be useful though.

[jimrobo]

although I have no specific technical strategy when I trade horse racing. A lot of the stuff I do is very closely based on market profile theory.

[Iron]

What do they indicate?

Jeff

Volume spikes at the end of the trading range can be useful though.

[rubysglory]

What do they indicate?

Jeff

Volume spikes at the end of the trading range can be useful though.

Hi Jeff, If I may answer this, I found the article interesting as my biggest losses trading have been preceeded with huge volume spikes a fleeting moment before the market reverses and escalates in the opposite direction. On such occassions I have found myself on the wrong side of the trade even though WOM and Charting would argue otherwise. For me, I find a spike in volume, as against a slow gradual buildup, as often indicating an end to a move for or against. At this point the price charts would flat line or reverse.

rg

[Iron]

Thanks RG - That's interesting.

What would you say causes the volume spike?

Jeff

Hi Jeff, If I may answer this, I found the article interesting as my biggest losses trading have been preceeded with huge volume spikes a fleeting moment before the market reverses and escalates in the opposite direction.

[James1st]

Very amusing thread about chickens and eggs

Logic would dictate that for every top there are backers and for every bottom there are layers. Ergo, when volume increases the market reaches a "percieved" limit and then reverses. Nothing amazing happening at all.

[jimrobo]

straight volume won;t tell you a lot. Its how the money gets matched at certain price points that will tell you whats likely to happen next.

[rubysglory]

Thanks RG - That's interesting.

What would you say causes the volume spike?

Jeff

If the markets we were watching were financial in nature (options,derivatives,stocks) I would say that the huge spikes were being caused by the institutions - the banks, pension funds etc. From a racing perspective I wonder wether the same is also possible, yet in this instance we have corporate bookmakers laying off their liabilities where they know exactly what their minimum and maximum price range is and are prepared to 'swamp' the market as a price run reaches its optimum. As for the chicken and eggs theorists, IMO its probably right to ask the question of who leads whom in any such move - the bookies or the exchanges ? Anyone ?

rg