does volume head price or price lead volume?
- Thread starter commanderco
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Quote from Bearbelly:
I have been doing a lot of thinking about this subject lately. Lets say price has been moving up then stalls out. It sits there for awhile with 100 on the ask and 100 on the bid. Obviously price is not going to change until one of these is taken out. If the bid and ask size dont change, hypothetically, the the first one of these taken out will cause the price to move in that direction so the first one to have sufficient volume to take out the orders will move. No? Yes? So it seems to me that the volume has to come in first to cause the price to move. Of course if there is 50 on the bid and 100 on the ask then less volume can cause the price to go down but the same would apply if there was 50 on the ask and 100 on the bid so if we cancel these two out assuming that it happens an equal number of times over the long run then those times when size is equal would determine the result and those times when size is equal the one with the most volume will move first as a result of the greater volume.
ok - and what happens if price triggers stop orders - hence attracts/mobilizes additional volume - i think we can agree that in such case price leads volume, or not?
anybody who thinks i'm wrong should correct me but i strongly believe that there is not one single relationship between two markets or elements or whatever where one thing is ALWAYS the leader of the other one. that simply can't be.
Lets reduce it to the simplest possible scenerio. The market is static. The last price is 1400. The bid is 1400 and the ask 1400.25 with no one willing to buy or sell. Now one person steps up and buys one contract at the ask (volume) THEN the last price goes up one tick to 1400.25. It cannot go up until this happens, can it?
Volume equals trades. A trade must occur before price can change. Price cannot move of its own volition can it?
Volume equals trades. A trade must occur before price can change. Price cannot move of its own volition can it?
Happens all the time in thinner stocks.
Even worse is the all-too-common case where someone buys a block of stock and price moves up .20 and then one minute later is back trading where it started. What has volume done here?
Price leads volume: when a stock comes up to a key resistance point or a key figure (e.g.: 52wk high), then a single 100 lot printing above this can often unleash a torrent of buying as breakout traders rush in. Price leads volume.
Volume leads price: I think what Jack is saying is that sustained, directional volume leads price, since volume is indicative of a big buyer which can not be absorbed by the market without changing price. A large amount of buying will reduce the number of sellers making further buying (at a given price level) even harder. Volume leads price.
When Jack talks about volume leading price, he isn't indiscriminate. With equities, he does not want a single large trade, he wants a steady, sustained pace of buying. That's why he recommends that we mentally erase block trades from the volume tally.
I don't think it's a simple matter of saying that volume always leads price or price always leads volume.
This morning's rally failed on lack of volume. After a few pops up it wasn't selling as much as lack of volume. Without volume price began skidding on its own weight as price skidded selling momentum picked up until price eventually fell back to ground zero with the assistance of a few helpful traders.
What's this "hmm" shit? Where YOU wanting an answer to such a unbased question?
The answer is no.
Quote from Bearbelly:
I have been doing a lot of thinking about this subject lately. Lets say price has been moving up then stalls out. It sits there for awhile with 100 on the ask and 100 on the bid. Obviously price is not going to change until one of these is taken out. If the bid and ask size dont change, hypothetically, the the first one of these taken out will cause the price to move in that direction so the first one to have sufficient volume to take out the orders will move. No? Yes? So it seems to me that the volume has to come in first to cause the price to move. Of course if there is 50 on the bid and 100 on the ask then less volume can cause the price to go down but the same would apply if there was 50 on the ask and 100 on the bid so if we cancel these two out assuming that it happens an equal number of times over the long run then those times when size is equal would determine the result and those times when size is equal the one with the most volume will move first as a result of the greater volume.
What about limit orders that only serve a purpose of being pulled to drag price down or up before volume picks up.