Tuesday, January 26, 2010

Relative Volume: How Busy Can You Expect the Market to Be?

Relative volume is an important indicator that tells you whether markets are more or less busy at a given time of day compared with normal volume at that time of day.

Relative volume gives us a clue as to the participation of large, institutional traders in the current market. It also correlates highly with intraday volatility, thus providing clues as to whether or not we'll be able to hit particular profit targets.

Here are median five-day ES volume numbers for each 15-minute period during the day that I use in my trading. All times are Central Time:

8:30 AM - 151,383
8:45 AM - 132,213
9:00 AM - 149,659
9:15 AM - 114,851
9:30 AM - 98,618
9:45 AM - 90,566
10:00 AM - 142,282
10:15 AM - 72,932
10:30 AM - 58,067
10:45 AM - 53,210
11:00 AM - 52,965
11:15 AM - 57,078
11:30 AM - 33,053
11:45 AM - 47,135
12 N - 40,629
12:15 PM - 47,346
12:30 PM - 41,972
12:45 PM - 31,933
1:00 PM - 47,043
1:15 PM - 38,975
1:30 PM - 50,185
1:45 PM - 55,170
2:00 PM - 48,564
2:15 PM - 73,848
2:30 PM - 79,974
2:45 PM - 135,342
3:00 PM - 150,838

Note how volume shifts during the day (the well-known "smile" pattern), with institutions most active early and late in the day. The 10 AM bulge represents activity due to economic releases at that time. Expectable volume would be more like 80,000 for days without releases.

With these numbers, you can make a reasonable estimate of whether markets are likely to be volatile or quiet during the trading day; you can also observe where volume picks up and tails off: nice clues as to the market's auction activity.

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2 comments:

Welcome to "The Perlstein Letter" Weblog said...

Usually, when we post times we are looking at the ENDING TIME of a bar of trading. You seem to be using the BEGINNING TIME of a 15 min period. That is strange and may be confusing to some of your loyal "students."

Joslin Lolo said...

Hi Dr.Brett, what is the correlation between morning and afternoon session in other words if the morning has above average vol for that time of day can you infer the evening session will? Similary I could see relatively high volume in the first hour - does that mean it will continue through the morning?