Volumes and analytics thread

Hello to everyone!!!

Continuing to post my trades on s&p:



Have a good trading day!

 

All attention to numbers today. GDP in line with expectations and consumption numberg a little lighter than expected. Still nothing huge.

All day i spent shorting, only because of technical reasons. Bulls should rest today.



Most up stocks from SPX:



Most down:

 

As long as there are tepid headlines about the economy, oil is going to be under pressure. Today it has broken resistance- largest volumes of previous days. Changing of futures contract+ light volumes so volatility is going to be higher.



For Jan10 futures contract on fundamentally important level 75.50 appeared first people with 1000 lots positions. My friend who trades by fundamentals opened long here too, by 75.98, quite clear signal



For longterm I expect oil to be 50 bucks a barrel. And selling next contract on gold market.

 

Looks like investors are feeling comfortable after new numbers, even if jobless claims data came a little worse than estimated. I think they should close the market today in green zone!=)But techically- I shorted today.

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Today`s leaders- Newmont and Barrick Gold Corp., largest US gold producers and Alcoa.

 

I look at the thread from time to time and I'm trying to figure out what's going on. I'm stupid and shameless; stupid in that I can't figure out what you're trying to state but shameless since I'm perfectly fine with asking.

Are you trying to post some scenarios involving volume in some particular way, or am I completely off base? And what's with all the moon language in the images?

 

Hi! Nice to see first questions.. Yes, I am trying to post my view of market. I will post here a book which I wrote some time ago, it`s about s&p emini and volumes, it should make people undersnading me more=) Have a good Thanksgiving Day! I will change language from russian to english!

 

Materials for the course of lectures: trade strategies development methods on S&P500


INDEXES. Meaning. background.
Indexes arose because of a need to account stock price averages when the market is analyzed and a decision on investment is made.
All price averages are based on that which is called a representative list. The whole list is divided in several groups: shares of industrial companies, railway companies, public-service companies, high-tech companies.
Dow Jones indexes are probably the most known among all averages. Those averages were developed by Charles Dow and first estimated in 1884 for 11 stocks only (one of the oldest averages, which has been already estimated for about half a century.) Afterwards this list was widened to consist of 30 stocks.
Dow Jones averages have their opponents despite the popularity. They are criticized for the weak statistical basis and insufficient representativity.

Other index S&P500 computed on the basis of 500 companies stocks recently has therefore become more popular among investors. The stocks accounted in the index represent companies of 86 industry sectors. The index comprises the stocks representing about 80% of market value of all stocks quoted in New York stock exchange.
S&P 500 is a list of 500 selected joint-stock companies in USA with the largest capitalization.
The list is owned by the company «Standard & Poor's» and is developed by it as well. It is the value weighted mean of prices of those companies’ stocks, that is known as S&P 500 index. Capitalization is used to weigh when the index is computed.
Standard & Poor's (S&P) is a subsidiary of McGraw-Hill corporation, engaged in analytical researches of financial market. This company along with Moody's and Fitch Ratings is included in a triad of the most powerful international rating agencies.
Before 1957, the «Standard & Poor's» company published two indexes: daily and weekly. The nowadays aggregate «Standard & Poor's 500» index replaced them in 1957.
S&P 500 index is more composite when compared with Dow Jones index, but it is considered more accurate by reason of that the stocks of more numerous corporations are represented in it, and the stocks of each of the corporations are weighted by the value amount of all stocks held by shareholders. Futures and options are traded at it on Chicago commodity exchange.
S&P 500 is not simply a list of the largest companies in USA as private companies and companies which stocks are insufficiently liquid are not included in it. In addition, when the list is developed, the authors attempt to represent different sectors of America’s economy the most fully.
For example, the stocks of such companies are included in S&P 500 index:
Company
Industry
General Electric
Power generation
Exxon Mobil Corp.
Information technologies
Microsoft Corp.
Information technologies
Pfizer, Inc.
Health care
Citigroup Inc.
Financial sector
Wal-Mart Stores
Key consumer goods
American Int'l. Group
Financial sector
Bank of America Corp.
Financial sector
Johnson & Johnson
Health care
International Business Machines
Information technologies
S&P 500 index is worthily called the barometer of America’s economy.

And NASDAQ is one more America’s popular index about which it is worth to tell.
NASDAQ is an index of over-the-counter market. A volume of trade through NASDAQ system has considerably grown recently. By 1986 the National Association of Securities Dealers developed and introduced 9 indexes. The composite index of NASDAQ over-the-counter market, which reference year is 1970, is calculated by NASD with using an automated communication system. Stocks of about 4300 America’s companies traded through the NASDAQ system are accounted.
Two indexes were introduced in 1984: the composite index of the NASDAQ system’s national market and industrial stocks index (of high-tech companies mainly) the NASDAQ system’s national market. A market value is used to weigh and 100 is assumed as the basis for both indexes.

Those which are well-known among other foreign indexes: FTSE100 (English), DAX (German), CAC (French), Nikkei (Japanese)

 

WHY FUTURES AT S&P500?
As is known, a futures contract is a contract on supply of any commodity with maturity. A contract’s parameters are determined on an exchange. Futures contracts first existed historically on a commodity exchange (soy-beans, sugar, gold, oil etc)
As the futures market adapted to financial instruments in 1970s, this resulted in reversal of opinions on futures trade. In 1982 exchange trade of futures started on the basis of a stock index. The trade developed most successfully on the basis of «Standard & Poor's 500» index, which is quite logical as the index itself has been one of the key tools of market situation analysis (market «barometer») and at which all the players in the market have been focused. And when it transformed from an analysis tool into a speculation tool, all the trained attendance actively participated in tenders. Therefore, trade in futures contracts attracts not only hedgers but numerous profiteers tempted by small initial margin as percentage (about 5-10% of the current value of a contract), and, consequently, by an opportunity to use a large «leg».
Thus, a great number of profiteers using that instrument ensure three main qualities of the instrument:volatility, liquidity, forecastability which in turn determine our interest to S&P500 and e-mini S&P.
Contract specification for e-mini S&P:
Futures contracts at S&P index are traded by contracts: December, March, June and September. A contract lasts for 3 months.
Official dates of S&P contracts expiry: Mar 20/3, Jun 20/6, Sep 19/9, Dec 19/12
A process of a contract replacement starts a week before the official date; it is not recommended to trade.
Marginal security for e-mini S&P contracts: from 2 250$ to 4 500$ per 1 contract. 3500$ on the average.
Tick level is 0.25, tick cost is 12.5 dollars. Thus, a cost of market movement at a position size is determined as 1 lot:
For example: change in price from 880 to 890 is 10 dollars (figure), which is 40 ticks and 500 dollars accordingly.
Some conclusions of observation practice and conducting of trade operations
1. Contracts are the best traded within the first 2 months: regular deals are practically conducted every day. More complicated deals with pass of 2-3$ are conducted within the last month. During that period it is recommended to trade especially cautiously as a lot of rating prices are formed at the end of a contract.
2. When the volume of a contract achieves over 300 000 lots, a price benchmark is levels of volumes registered within the last week and the week before last.
3. Transition to a new contract occurs within the last week of a contract, so it is not recommended to trade during this period. It is not recommended to trade on news days, namely when news from Federal Reserve and unemployment reports are published.
4. Following the trade within an «impulse» (with strong movement) hour, it is necessary to make a break of 2-3 hours. As a rule, a day more “inert”, accumulating or corrective follows after a trend day.



Platform tools used to analyze a market situation:
counters: All prices, volume search, aggregate, daily minutes
diagrams: Bar chart ( 60 min, 10 min, 1 min) cluster chart ( 60 min, 30 min, 5 min), combo bar ( week, day, time),
Action algorithm when it is analyzed a situation before tenders:
1.Determine rating price levels (i.e. levels of significant volume indicators; usually, the first 5 prices in rating “All prices”) with using volume counters at different time spans. (Study the last month period, two weeks, the last week, the last two days from the beginning of a week). Numerical values of volume indicators are also a subject of the analysis.
2.Plot significant levels on a Bar chart. (Analyze charts for a day, 60 min, 10 min) and Combo bar (week, day)
3.Analyze a response of the market to key levels in the past and determine presence (absence) of a trend, its development degree.
4.According to item 3, determine actions priority for a forthcoming tender period.
5.Set price levels, probable entry points and targets.

Any decisions are made on the basis of analysis which purpose is to estimate probabilities and to determine the point with probability of occurrence of the event planned by us of not less than 80%. You have already familiarized with the brief action algorithm above. Now we will consider in details all the parameters of systemic analytical approach.
There are several basic levels in the systemic approach to an analysis of any financial instrument, and in particular, to S&P500 index:
1.Time (analyze behavior, nature of trades, price ranges, volume indicators and other parameters within different time periods, starting from the background in the case of speculative deals: 3-6 months, and ending with short time periods: 1 hour, 30, 15 minutes).
2.Trend (presence/absence, arising, extinction of a trend within any time period)
3.Outlining of action priority (buying/sale).
4.Price benchmarks (to enter into a deal, forecast of target, fixing of a deal)
Having analyzed the market situation for each of the levels, we sum up the data and get that entry point with a large probability value (up to 90%) of the event planned by us.
We will consider in details in this course titled «development of trade strategies for S&P500» the peculiarities of analysis, planning and conducting of trade operations using this instrument in the contents of operation procedure on the basis of data for volumes. (We will consider as the theory of operation with volume indicators integrates in the systemic analytical approach, enriches it and places on a new level, which enables to optimize a trading process). How to find an entry point with the larger probability of an expected event with using the functions and advantages of VOLFIX platform. All academic schemes and theoretical postulates of the method would be visually confirmed with some examples of actual trade cases.

Before we move to the detailed consideration of that how volume indicators are analyzed, treated and used at each of the systemic levels (i.e., operation at relations: volumes-time, volumes–direction, volumes-action priorities, volumes-price benchmarks), we will repeat the fundamentals of procedure for working on the basis of data pertaining to volumes, with which you are familiar from the initial training course (should you not be familiar with this course, it will be necessary to be trained under it before you start with the given course):
First fundamental:a volume indicator reflects a degree of intensity or strength of price policy, a risk degree in this or that price range for market players. An increase in volume evidences of rising of the pressure on prices, which forces them to change.
Second fundamental:adecrease in pressure due to buyers/sellers is first detected with volume indicators before it directly reflects in a price tendency (hence, forecast significance of volume indicators). Thus, the scheme “volume-price” works.
Third fundamental: those the most interesting in terms of analysis are maximal volume indicators forming the very levels of support/resistance, well known from the concepts of technical analysis. The market moves from one level of maximal volumes to the other one, and this rule is held for various time periods.
Should those fundamentals have been realized and tested by you, then we will move to consideration of development of trade strategies for S&P500. THUS:
§VOLUMES-TIME (work with volume indicators at different time intervals):
Time is a key parameter when a situation is analyzed and a decision is made. The market axiom exists not without reason: «it is important not what to buy or sell but WHEN to buy or sell.»
Time determines the market rhythm (impulse-pause–impulse).
When operating with futures in general and particularly with S&P futures, time is extremely important as the tool is volatile enough and there is “leverage effect” here as for all futures instruments. Therefore, selection of RIGHT TIME to conclude a deal is extremely necessary (and is critically important for deposits of less than 100К). Having become familiar with the rules and key principles of operation at relation «volumes– time», you will be able to avoid mistakes when entering into deals and considerably optimize your trade system.

 

As far as "time" parameter is concerned, there are several rules enabling to correctly estimate volume indicators and operate with them:
First rule: intraday volumes consolidated in weekly, weekly ones in monthly, monthly ones are involved in forming the maximal amount of a contract, which is the most significant and maximal volume. (A volume is placed in a volume under a principle of set of nesting dolls). Coincidence (or maximal approximation) of levels of maximal half hourly, hourly, daily, weekly, monthly (or other occurring at different time) volumes provides a maximal significant price level with large degree of reliability of a deal performed at it and strictly focuses the deal’s time point.
An example of coincidence of significant monthly and daily levels:





Having analyzed the readings of counters for the period from 6.10.08 to 27.10.08 (140 411 lot) and for Monday 27.10.08 (36 034 lot), we may see that 870/869 level is significant within these different time periods; therefore, it may be expected considerable movement while trading from this level. It just so occurred on 28.10.08.: the 870 level was broken and the strongest intraday movement was induced by it (see the graph). It is interesting that within the day further time work continued at that level, which narrowed a time range of the deal to several minutes (see cluster charters below).



Graph illustrated the scheme of “overlapping” of the levels formed by maximal volumes in different time periods.

Example of level coincidence at different time scales: 120 min and 15 min



At 12:00 when price level was 872 we saw coincidence of price values at scales 120 min and 15 min (on the left); at that, the same level is marked (scale on the right) as the level of maximal daily volume.
At the same moment this level was actively broken.

 

Scales on the left are in a narrow price range; 33 032 lots are accumulated at 870 level. Buying from this level at 13.20.



We will consider coincidence for short time periods in more details in the intraday section (intraday trading)

Second rule: the longer the time period within which a volume was formed, the more significant price level at which the volume was formed. That is why the levels formed by a contract volume are more important than weekly levels, weekly levels are more important than the daily ones.
Thus, levels rating by volume indicators and time of a volume formation as such:
1.A level by a contract volume (maximally possible of S&P volumes and covering the whole trade period starting from appearance of first lot in it)
2. A level by the volume for a day (current and previous)
3. A level by the maximal volume for a day (current and previous)
4. A level by the maximal volume for an hour (half an hour, 15 minutes, 5 minutes etc)
And here we can give approximate volume indicators significant for level formation in each time period. (You may broaden for yourself this list of coincidence of a volume formation time and its numerical value):

Volume for an hour
Volume for a day
Volume for a week
Contract volume
Approximate indicators of maximal volumes

10 000/20 000 lots



30 000/40 000 lots

100 000 – 200 000
From 150 000 to
500 000 lots.

Logically following from the second rule
Third rule: in any time period the largest value (in terms of a deal’s reliability) usually belongs to its second half. If to consider a month, then the intersection with the central (or the second week) serves as supporting factor for a deal. The most reliable deals intra week are those concluded from the volumes of Tuesday, Wednesday, i.e., in the second half of a time period (when a weekly volume being an additional support and confirmation of previous weekly volumes has already formed; see an example below) as well as intra hour: the first half an hour for volume formation, the second half an hour for selling out from formed levels of maximal volumes.
Let us consider an example of trade strategy for the intraweek time period: 13.10.08- 17.10.08
The key levels of last week: 1020, 1005, 1000. Levels for the period of Monday-Tuesday: 1055, 1018,5