Results were choppy and even the better periods generally underperformed a random 1-2 week period.
Next I looked at what happened if the volume rose both days as it has the last 2:
Generally positive results. Nothing eye-popping but “worse than random” has turned to a positive bias.
What if I look at only those times when the market was up 1.5% for two days in a row and there wasn’t a progressively higher volume pattern?
As you’d expect, things have gone from choppy to choppy with a slight downside bias.
What if instead of rising two days in a row, we look at the same price pattern where volume sank two days in a row?
A gently positive bias with rising volume becomes a violently negative bias on decreasing volume. Of course the number of instances here is quite small. To remedy this I lowered the price requirement from 1.5% to 1%. Results below:
Similar story here. Any way you look at it, the moral is this: Pay attention to volume. It matters.
As a bit of a tease I’ll let everyone know that I’m currently conducting a large research project related to volume. I hope to be able to release results some time in August.
10 comments:
Rob,
How about an update on the CBI? It hasn't been updated since 7/23/08.
Thanks,
dieselfuel
Also, how about a Subscriber Letter Results For June post? Or perhaps this weekend a June-July results post. Thanks!
according to stockcharts volume was lower yesterday than the day before.
Volume was higher according to IBD, Worden Bros., and Quotes Plus.
The CBI has been at 0 since 7/23.
Excellent blog.
If you look at the daily chart of S&P 500 and volume, you would see that volume had been less during up days compared to down days from 2003 to the peak.
Also if volume is so important, then March low should not have been breached.
IMHO, as more people start following something as an indicator, the results get skewed.
I eagerly await the volume studies. For trading breakouts, I've concluded it is the single most important factor for a sustainable entry edge. Thanks for sharing your work.
Johan,
Tradestation is showing higher volume as well. Not sure why stockcharts isn't confirming with the others.
Johan,
what volume are you looking at??? i see higher volume for the SPX at stockcharts.com. also i see that in other websites too. in yahoo, there higher volume for SPX in the NYSE volume.
Jimmy
anon-
Re: volume as an indicator and skewed results...
I think it is possible that some strategies are macro enough, or provide enough variety of signals daily that it would be difficult for the edge to be sucked out of them.
Also, whether your edge is diminished depends trememdously on your timeframe.
I see the same thing now. So either they have changed it or I looked at the wrong chart.
However, the volume increase is ridiculously small, at least according to the Stockcharts figures. So I still wouldn't use this as an edge in decisions.
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