Monday, April 20, 2009

Another Look at Intraday Volume and Volatility

For this investigation of the relationship between volume and volatility, I updated my look at 30-minute high-low ranges in the ES futures as a function of their 30-minute volume. The data cover all full trading days in 2009. Below we can see the group numbers, the average 30-minute ranges, and the corresponding volume levels:

One 0.508 <100,000
Two 0.634 100-125K
Three 0.729 125-150K
Four 0.827 150K-175K
Five 0.893 175K-200K
Six 1.002 200K-250K
Seven 1.351 > 250K

When 30-minute volume was under 100,000 contracts traded (Group One), the average high-low range in ES was .51%. By Group Four (between 150,000 and 175,000 contracts traded), the average 30-minute range was .83%. When we've had 30-minute volume above 250,000 contracts (Group Seven), the average range has been 1.35%.

Once again we see that volume and volatility are closely intertwined: there is more movement when large traders are participating in markets. Understanding how current volume compares with average volume for that particular time of day is essential in gauging how much you can take out of trades.

Tomorrow I will update 2009 relative volume norms (expectable volume for each time of day) on the blog to help you read when markets are average, slow, and busy.