Tracking Traded Volume in Price Bars
Back in March, I posted an article detailing the tracking of the traded volume at the bid price versus the ask price on price bars. Yesterday’s release of the New Home Sales created some more examples of the usefulness of tracking the traded volume at the bid and ask price for price bars.
To start, I created two custom studies: Best Ask Volume and Best Bid Volume. This image shows the two elements listed under the Bar Values in the Formula toolbox and the formulas for the Best Bid Volume study, which used BidTradeVol(@). The Best Ask Volume study uses AskTradeVol(@). I also color-coded the price bars. If the volume of trades at the ask was greater than the volume of trades into the bid, then the bar is green, otherwise it is red.
Now, let’s walk through two market examples: the Ten-year T-note futures and the E-mini S&P 500 futures, and see how traders reacted to the release of New Home Sales at 09:00 Central Time. I think it is an interesting look at the two markets.
Looking at the T-note futures, we can see that traders hit bids on Bar A (New Home sales was released) to the tune of 91,927 (C) versus lifting offers of 66,686 (B). Then, when the market made a new low (D), traders hits bids for 18, 547 contracts (E) versus paying up for 13, 416 contracts. Traders selling 18, 547 contracts was a lot less volume then the 91,927 contracts hitting the market on the first sell off. This break to a new low on lighter selling pressure was a positive sign. That retest on lower volume is a classic short-term bottom pattern. Sellers did not come out and aggressively press the market down in response to lower prices. The market was sold out. That condition led to a rally.
Checking the chart on the E-mini S&P 500, we can see that traders bid the market up (Bar A) and lifted 61,798 contracts (B) and hit bids for 35,783 contract (C). Traders retested the high on the next 5-minute bar, but from there traders were hitting more bids than lifting offers (most of the price bars are red). The market tested support formed ahead of the news release, and the buying was not aggressive and when support gave way, sellers aggressively hit bids for 46,974 contracts (E) versus buying 32,153 contracts. Sellers were more aggressive, they attracted a following, and the market trended down.
I really like this ability to take elements available from today’s market transparency and create studies in CQG that give me much better insight into what traders are doing in the market place. Ultimately, I am using the classic economic tenet of demand versus supply, or buyers versus sellers to understand how the market is trading, either weak or strong. The aggressors drive the market direction. Moreover, if they attract a following, the market trends.