How to interpret volume - page 2

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Alain Verleyen #:

Yes but what that correlation gives you ?

Not much (though it can be useful, let's agree), as real TOTAL volume doesn't give you much, and as it's only a correlation you are missing the nuances that real volumes could possibly give.

What is really giving an edge is when you have BUY and SELL volumes, and more the granularity of these data is high more it's informative and useful.


I agree, especially correlation is not equal causation. It is very difficult to read the actual price action causation from OHLCV data, it is fuzzy and hidden.

More detailed data is most probably giving you a more deeper look into what's happening actually.
 
Dominik Egert #:

I agree, especially correlation is not equal causation. It is very difficult to read the actual price action causation from OHLCV data, it is fuzzy and hidden.

More detailed data is most probably giving you a more deeper look into what's happening actually.

Here's Comex Gold futures real volume up top, and same tick volume down below. I would be surprised if this heavy price-volume correlation is limited to futures only.

real volume

tick volume

 
Ryan L Johnson #:

Here's Comex Gold futures real volume up top, and same tick volume down below. I would be surprised if this heavy price-volume correlation is limited to futures only.

It’s not surprising if both charts come from the same futures broker - this correlation is specific to futures and their brokers.


Now, compare this with the tick volume provided by an average retail broker, and you’ll quickly spot the differences.

 
Daniel Stein #:

It’s not surprising if both charts come from the same futures broker - this correlation is specific to futures and their brokers.


Now, compare this with the tick volume provided by an average retail broker, and you’ll quickly spot the differences.

I respectfully have to differ, at least to a local extent. COMEX is a centralized commodities futures CME exchange in Chicago, Illionois in the United States. Whether you want to trade futures in the U.S. as a professional or a non-professional, you must subscribe to a CME data package. To be clear, contracts-for-difference (CFD's) masquerading as futures contracts (or forex contracts) are illegal in the U.S. Therefore, everyone trading futures in the U.S. is looking at the same CME data.

Regarding retail forex trading in the U.S, forex broker-dealers must ultimately clear their books in the greater prime (interbank) market pursuant to U.S. National Futures Association rules. This creates an interbank market tracking effect in U.S. retail forex markets. However, those broker-dealers are allowed to partner with investment banks, hedge funds, etc. as liquidity providers. Given the fact that the average interbank market trade size is 50 million to 100 million USD, there is an argument to be made that these partners really do provide liquidity to small traders. Even so, the broker-dealers pay those partners for sending retail trades their way. Obviously, such a fractured industry of mix-and-match liquidity providers creates a wide array of different data feeds.

I am somewhat familiar with the U.K.'s financial markets regulation, and less so with the E.U.'s financial markets regulation. I do know that in both jurisdictions, there is less regulation which leads to less centralization and more data variability among brokers/broker-dealers.

All of this still begs the question... Does traded volume predictably influence price ticks? It's common knowledge that large trades move price, but how proximate are you to those large trades being executed at your given broker/broker-dealer? I suspect that the answer to the volume-tick question is much more nuanced than rigid. Unsurprisingly, it largely depends on the jurisdiction in which you're trading, its regulatory regime, and the resultant level of market centralizations.

 
Trading volume can impact prices, but it's not a straightforward or linear relationship. It certainly can't be fully predicted through automation. In FX trading, different data feeds from various liquidity providers add to the complexity.
 
As a side note... If you are trading a Micro E-Mini futures contract that has an analogous full-size contract on the same exchange, you should use the real volume of the full-size contract for your analysis. Micro E-Mini Metals prices listed on the COMEX exchange are highly analogous, if not identical, to their respective full-size contract prices. Remember, large trades are moving price.
 
Ryan L Johnson #:

I respectfully have to differ, at least to a local extent. COMEX is a centralized commodities futures CME exchange in Chicago, Illionois in the United States. Whether you want to trade futures in the U.S. as a professional or a non-professional, you must subscribe to a CME data package. To be clear, contracts-for-difference (CFD's) masquerading as futures contracts (or forex contracts) are illegal in the U.S. Therefore, everyone trading futures in the U.S. is looking at the same CME data.

Regarding retail forex trading in the U.S, forex broker-dealers must ultimately clear their books in the greater prime (interbank) market pursuant to U.S. National Futures Association rules. This creates an interbank market tracking effect in U.S. retail forex markets. However, those broker-dealers are allowed to partner with investment banks, hedge funds, etc. as liquidity providers. Given the fact that the average interbank market trade size is 50 million to 100 million USD, there is an argument to be made that these partners really do provide liquidity to small traders. Even so, the broker-dealers pay those partners for sending retail trades their way. Obviously, such a fractured industry of mix-and-match liquidity providers creates a wide array of different data feeds.

I am somewhat familiar with the U.K.'s financial markets regulation, and less so with the E.U.'s financial markets regulation. I do know that in both jurisdictions, there is less regulation which leads to less centralization and more data variability among brokers/broker-dealers.

All of this still begs the question... Does traded volume predictably influence price ticks? It's common knowledge that large trades move price, but how proximate are you to those large trades being executed at your given broker/broker-dealer? I suspect that the answer to the volume-tick question is much more nuanced than rigid. Unsurprisingly, it largely depends on the jurisdiction in which you're trading, its regulatory regime, and the resultant level of market centralizations.

And where exactly is the contradiction to my statement? The tick volume of a futures broker is, of course, of a completely different quality, as it is based on actual trading activity.

In the MetaTrader environment, tick volume is simply a counter of price updates, allowing any market maker to manipulate it as they wish. This isn’t about futures trading but rather about pure CFD trading, which dominates the MetaTrader ecosystem.

So yes, the correlation is obvious with a futures broker because it’s inherent to the trading instrument itself. In contrast, the typical retail CFD trading environment is an entirely different world. If you compare the tick volume between two CFD brokers, even with the same price movement, you’ll often find significant differences.

This is why I consider the traditional tick volume, as it is used in MetaTrader and named volume, to be misleading and absolutely useless. The information varies from broker to broker, sometimes with massive discrepancies.

 
Daniel Stein #:

And where exactly is the contradiction to my statement? The tick volume of a futures broker is, of course, of a completely different quality, as it is based on actual trading activity.

In the MetaTrader environment, tick volume is simply a counter of price updates, allowing any market maker to manipulate it as they wish. This isn’t about futures trading but rather about pure CFD trading, which dominates the MetaTrader ecosystem.

So yes, the correlation is obvious with a futures broker because it’s inherent to the trading instrument itself. In contrast, the typical retail CFD trading environment is an entirely different world. If you compare the tick volume between two CFD brokers, even with the same price movement, you’ll often find significant differences.

This is why I consider the traditional tick volume, as it is used in MetaTrader and named volume, to be misleading and absolutely useless. The information varies from broker to broker, sometimes with massive discrepancies.

To clarify, I replied to your statement regarding "tick volume provided by an average retail broker." My point is that "an average retail broker" has a different meaning in different jurisdictions/countries. Again, I believe that a nuanced analysis is more helpful to traders in all parts of the world.

I agree that contract-for-difference (CFD) markets are definitely unique. CFD's are not connected to any underlying asset for the purpose of clearing trades. CFD's are not exchange cleared stocks, futures, options, nor prime cleared forex. CFD's are a contract between the trader and the broker-dealer, and not between 2 or more traders. Every CFD broker-dealer is creates its own "market." The rampant CFD manipulation that you mention is likely the reason that CFD's are totally banned in the United States.

The really wonderful thing is that traders outside of the U.S. can generally access U.S. exchange and prime cleared markets (in the absence of any embargoes or sanctions) and gain more accurate use of real exchange volume and/or prime tick volume.

FYI, I'm trading real futures contracts listed on the Chicago Mercantile Exchange (CME) in MT5.
 
I ALWAYS recommend retail traders to ignore volume as a standalone indicator, because all it really says is that a large number of trades were conducted at a given time, that's it. How often have people at the "bottom" of a market gone long because of a volume spike, only to see the price tumble even further and vice versa? Hedge funds and the FX departments of investment banks intentionally do this to confuse the retail trader and profit that way. So please never interpret anything other than "more than an average # of trades were done than usual" when you see massive volume spikes and don't act on that indicator alone. Stay safe and happy trading guys :-)
 
Dominik Egert #:
There are 4 parties at play to create price. -Wanna Buy and Buying, Wanna Sell and Selling.

When you say "wanna buy" are you referring to for example pending buy orders? Because I can see how that could possibly skew volume readings in a bad way

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