So what makes price at the moment greenspan starts talking so sexy? Price may have visited the same exact value numerous times right up until the point greenspan appears on the screen and then all of sudden the same price which had been visited numerous times earlier is SUDDENLY sexy??? Fact is, the price could be absolutely arbitrary when greenspan appears and the same exact sequence will still unfold and yet with the same degree of excessive volume. The reason for the price displacement is not because of attractiveness of a particular price but simply because of the magnitude of the volume. You can observe that the bars with the greatest displacement also have the greatest volume comparitively. If one were to pull two different bars encapsulating the same exact price, why doesn't the same price attract a comparable amount of volume?
This happens in many eurex products all the time - 1 tick traded and sometimes nothing traded and the price changes. I guess you have to define the market you are talking about.
Here is what you see at the tick level. Market orders are not flowing fast enough to exhaust the inside market at the depth you can see, which is generally less than the true depth of the limit orders. One side of the inside market is pulled. Stops or stop entries trigger market volume greater than the previous flow of orders. Hence price leads volume. Not always, but a hell of a lot of the time. Don't count on making money by predicting when the inside market will melt away due to market orders. You are likely to get whipsawed by a "floor rotation".
Mmm, juicy topic. I am into range prediction, so the previous day's range and the next day's volume are the two main factors used to predict the next day's reversal points, combined with S&R levels such as previous high, low, and pivot point. Once I added pro-rata volume (PRV) to the mix, it was amazing how many times the distribution of the daily range over time tracked the PRV. The lower the volume, the better the prediction of that day's range using the PRV. Above-average PRV is an entirely different story. There, you have to switch to the principle of alternation (NR WR NR repeat). Your range prediction switches to a breakout/consolidation pattern cycle, and you will observe high-volume NR days in preparation for a high-volume WR day. To answer the question, does volume lead price? Sometimes, but price can lead volume, too. The market is a funky beast.
Most of the volume in the index futures is related to arb or program trading, so I doubt volume is meaningful here. For stocks I've found some validity, but never anything I could systematically exploit.
Two things.... You mention inside get's pulled (ie for discussion purposes bidsize=>0). Next tick at bid is a downtick. My orientation is indifferent as to whether stops, limits, and or market orders are the current dominant volume constituent. The flow is great for telling me one thing, how soon the dP will change. When T&S is running, I know I am in efficient low risk profit taking mode. When T&S is just slowly eeking out ticks, I am alert for the possibility of a directional change... When the market gets pulled, presumably you are talking about cancellation orders. On the inside market, are you saying that you are finding more cancellation orders than actual transactions? Correct me if I am wrong but presumably if this is what you're stating, then you have done some extensive real-time DOM analysis that distinguishes between that which is a cancellation as opposed to a T&S transaction. Y/N? Curious here in the constructive sense...
I rarely attempt to explain what I see. It just is. Every setup I take (apologies to Jack) has a simple empirical (and often illogical) description. Often the only way they make sense is if they are elements of a manipulation. I don't watch DOM (it's useless IMO), but I do chart the inside market on a one second chart instead of actual trades. Makes it clearer to me what is really happening. Or is it only happening in my invagination?
I trade the HSI and was trading the Globex Euro (6E) contract. In the case of euro during european hours large volume was a sign of manipulation and you could build unconventional setups on it. In the case of HSI, everything is manipulation, and volume is not very useful at all to me. A question for John Merchant: What do you mean by "I do chart the inside market?" Would you be kind enough to give an example?
Second pane from the bottom, the aqua and red lines. I blew up the time scale to make it clearer. This is after hours NQ tonight, so the spread is wider than a tick at a couple of points. It's totally trivial, a few lines of code to draw the bid in red and the ask in aqua. I find it more informative than charting the last transaction, which might have been at either price.