Discussing the article: "Beyond Tick Volume: Measuring Market Activity from the Waits Between Quotes"
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Check out the new article: Beyond Tick Volume: Measuring Market Activity from the Waits Between Quotes.
Tick volume mostly reflects the time of day and is only complete when a bar closes. We build a per‑quote, live activity gauge from the waits between quote changes, remove the intraday rhythm, and model the remainder with the autoregressive conditional duration (ACD) model. We then test whether this activity measure improves short‑horizon volatility forecasts once live price volatility is already in the model.
Every MetaTrader 5 chart carries a measure of market activity for free: tick volume, the number of price updates that arrived during a bar. It answers its question exactly. If a bar received 640 quotes, tick volume prints 640. The trouble starts when we ask it a different question: is the market unusually busy right now?
Three things stand between a per-bar count and that question. The first is the clock. On EURUSD, the average time between quotes during the quietest half hour of the day is roughly forty-seven times longer than during the busiest half hour, and the pattern repeats every day. Most of what a tick volume histogram shows is therefore the time of day. A tall bar at the London open usually means only that it is the London open. The second is timing. A bar's count is complete only when the bar closes, so in the middle of a bar it holds a partial number that cannot be compared with the finished bars beside it. The third is resolution. Two one-minute bars with 20 quotes each look identical, whether those quotes arrived evenly or as one burst in the final three seconds.
This article builds a gauge that answers the question directly. It uses the time between consecutive quotes rather than counts per bar, and divides out the normal rhythm of the trading day. What remains is modeled with the autoregressive conditional duration (ACD) model of Engle and Russell (1998). The result is a single number, updated on every quote, that reads 1 when the market is exactly as busy as it normally is at this hour, 2 when the model expects quotes at twice the usual pace, and 0.5 at half. It is a smoothed reading of the recent pace, not a count of the last few seconds.
Author: Muhammad Minhas Qamar