In a recent post, I suggested that we can track the presence of large institutional traders by knowing how current volume compares to average volume. Because the majority of volume is attributable to large trades (and large traders), below average volume or above average volume gives us an indication of the relative absence or presence of these large market participants. Since many of these participants are trading directionally, their presence is associated with enhanced volatility and greater likelihood of short-term trending behavior.
But how do we track high and low volume during the day, given that average volume varies greatly through the day? Here is a simple tool I've made available to the prop traders I work with. It's also sits on my desk as I trade for quick reference. It's a synopsis of median trading volume in the ES futures for every 15 minute period in the morning over the past month (N = 22 trading days). The chart above shows the median trading volumes plotted as a cumulative curve, so that you can see what average total volume looks like at each point in the trading day. If today's trading volume in ES, as reported on your datafeed, exceeds the curve, you know we have above average volume. If we're falling below the curve, we have a relative absence of large traders--and a greater likelihood of a narrow, rangebound market, as has been the case most of this week.
You can click on the chart, print it out, and use it for reference during the trading day. I like to update mine weekly.
Here are the median trading volumes--and trading ranges--for each 15 minute period (Eastern Time).
9:30 - 9:45 AM - Median volume is 66,022; median range is 2.75 ES points
9:45 - 10:00 AM - Median volume is 58,107; median range is 2.875 points
10:00 - 10:15 AM - Median volume is 59,408; median range is 3 points
10:15 - 10:30 AM - Median volume is 46,598; median range is 2.25 points
10:30 - 10:45 AM - Median volume is 53,226; median range is 2.75 points
10:45 - 11:00 AM - Median volume is 36,549; median range is 2.125 points
11:00 - 11:15 AM - Median volume is 36,203; median range is 2.375 points
11:15 - 11:30 AM - Median volume is 27,419; median range is 1.75 points
11:30 - 11:45 AM - Median volume is 27,273; median range is 1.75 points
11:45 - 12:00 N - Median volume is 23,638; median range is 1.75 points
Note that both volume and volatility fall considerably during the course of the morning, with a notable dropoff around 10:45 - 11:00 AM Eastern Time. This is why I commonly stop trading (and blogging) around that time. Volume tends to dry up, and opportunity for short-term trading tends to dry up with it.
Also observe that a trading volume of 50,000 contracts at 11:00 AM ET might not attract a trader's notice, because it is not higher than the volume seen earlier in the day. For that time of day, however, 50,000 contracts would represent seriously elevated market participation. You would want to identify what is going on at that time (breakout from a range; news item; etc.) and see if it represents an opportunity for you to join the trend of the large traders. Similarly, if you see below average volume for the first 15 minutes of trading (as has happened most of this week), you'd want to mentally prepare yourself for a slow, narrow-range day.
Finally, knowing these numbers helps you figure out when an economic report at 10:00 AM ET is truly having a significant market impact. If the volume shoots significantly higher than the average volume for that time of day--and is higher than the volume earlier in the day--you know that the economic release is attracting large traders. These are the participants likely to reprice the market. On the other hand, if a release comes out and you don't see an elevation of volume, you have an excellent indication that this will have no meaningful impact on subsequent trading.
(Note that the median 15-minute ranges give you a sense for expectable movement in any 15-minute period, which can be useful information in determining when a move has gone about as far as it's going to in the short run.)
My sense is that these curves can be created for any futures contract and any stock. They provide you with a sense for who is usually in the market--and who is participating now. The periods of enhanced participation will provide you with the periods of greatest market movement, and the largest traders will point the way to which way the market is likely to move.
I will update the data periodically if there is interest. Because most large cap U.S. stocks and equity indices are highly correlated with the S&P 500 Index, a reading on ES volume will provide useful clues as to likely activity in your trading instrument.