Is volume analysis useful in index futures?

[Laissez Faire]

Hi,

Assuming that volume analysis of various kinds is useful in technical analysis - would a market like index futures be any different than other markets like for instance commodities? Or single stocks?

With index futures, you're basically trading a basket of stocks or an index, which is widely traded in multiple markets, i.e., various ETFs, the stocks composing the index, program trading/arbitrage, hedge fund managers hedging/offsetting positions, etc.

In light of that, I've always been wary about reading too much into volume or making any inferences based on volume.

Or are these markets so perfectly correlated that volume in the ES is representative of what's 'actually happening' in 'the market'?

Any thoughts?

Regards.

 

[learner2007]

While I find climatic volume to be of use in analysis, I imagine it's the MM's making up the majority of the volume and attempting to remain flat that causes the volume to be too constant and of less value in analysis than say in stocks. I'm speaking of that in the Nikkei.

 

[Jankovic]

No

 

[supreme trader]

YES!

 

[Robert Morse]

As there is a NO and a YES!, I'm going to go with MAYBE. Trading is just not that simple. Those that can mine data and get alpha from it, will profit. If you can "watch" futures and their volume and get profitable triggers from adding that to other information, that would separate you from the crowd.

Whatever works.

 

[Scataphagos]

I'm not a fan of volume. (Joe Granville was always a big proponent of "On Balance Volume"... his own proprietary indicator if memory serves. It served him well when he first started touting it, but later led him astray to being wrong just about all the time.) Years ago I had my own custom volume oscillators which seemed to correlate well with important price turns. Then one day I realized they no longer did so, and I quit using volume entirely. Important swing/big highs and lows are made on light/heavy volume, so I conclude "no value/price correlation to volume studies".

Some traders use "volumentric bars" (available option in most charting packages) for charting instead of "time periods".

Personally, I suggest not wasting time on volume studies for the indices. But what the hey.... check into it a bit if you care to and maybe you'll find something worthwhile. Don't be surprised though if you come up empty. And keep in mind... you primary objective as a trader is to be in tune with PRICE... not volume.

(Many traders see volume as the Holy Grail of trading.... and to poo-poo volume is trading heresy. I think proponents see what they believe they should see or what they want to see... but that's another story. Don't be surprised if you find disagreement with my views.)

 

[Sprout]

With index futures, you're basically trading a basket of stocks or an index, which is widely traded in multiple markets, i.e., various ETFs, the stocks composing the index, program trading/arbitrage, hedge fund managers hedging/offsetting positions, etc.

In light of that, I've always been wary about reading too much into volume or making any inferences based on volume.

Consider the opposite. That all those market participants trading behavior’s distill into 6 points of information - ohlcv in time.

If one isn’t discerning the significance, role and form of volume than perhaps the inferences one has can be expanded and refined.

If one is looking for validation of their bias, they’ll never see that volume leads price - without exception.

More so, they would have a vehemently negative reaction that such a possibility exists.

Just because someone doesn’t understand a foreign language doesn’t have any reflection on that language’s utilitarian function to communicate meaning.

Understanding volume is as comprehensive as understanding price action if not more so.

There are the forms of the volume bars themselves as they relate to price, the relative comparison and contrast of volume bars to each other, the pace and change of pace by which a bar builds, the manner by which a volume bar builds, and the relative position of the volume bars to each other that comprise a trend segment to name but a few.

One thing is certain, whether one sees these relationships on a chart, DOM, or T&S, once one sees it, it cannot be unseen.

 

[Laissez Faire]

I'll try to make a more in depth comment later, but to clarify; this discussion is about whether volume analysis is different in a market such as stock index futures for reasons already mentioned as compared to a single stock or commodity.

I think raw volume on a 1-minute bar is flawed, but what might be interesting is local peaks in volume or a skew between bid/ask volume, i.e., delta...

I am however not convinced yet that it might be useful in stock index futures, but I keep an open mind for further studies...

 

[Xela]

Is volume analysis useful in index futures?

It is to me, and to those of my colleagues who trade index futures.

this discussion is about whether volume analysis is different in a market such as stock index futures for reasons already mentioned as compared to a single stock or commodity.

I trade mostly NQ (not ES at all); I can't comment on any comparison with individual stocks, since I've never traded one in my life ... but I do sometimes trade oil futures, too, and I use volume for that.

I am however not convinced yet that it might be useful in stock index futures

Call me naive and/or isolated (and I'm not saying this facetiously or rhetorically: clearly I am naive on this point, and I'm certainly pretty isolated, compared with many traders, which was the primary reason I joined this forum) but I honestly wasn't aware that there were experienced traders who were "not convinced that volume might be useful in trading index futures", and am genuinely slightly surprised to hear it.

I can't really add anything else helpful, because Sprout has already said everything I'd have said (but much more succinctly and precisely than I'd have managed ... no surprise, there).

Mostly, I'm posting just to record my "pro-volume vote" in the conversation.

 

[Scataphagos]

I honestly wasn't aware that there were experienced traders who were "not convinced that volume might be useful in trading index futures", and am genuinely slightly surprised to hear it.

I'm one of those. Seems I read somewhere that traders looked to volume as "confirmation" of the move. Funny, I don't believe in that either.

Even if there is a correlation of volume to price (and I've just ignored it because of co-correlation elsewhere)... traders don't need volume to "get it right". I suspect the notion of "volume confirmation" causes traders to miss more than it helps avoid losing trades. (I recall thinking many times when I was still using my volume oscillators... "I didn't buy/sell because volume wasn't right or didn't "confirm".... and it turned out I should have made the play and volume considerations had put me incorrectly off of it. So somewhere along the line I had the epiphany, "Volume? Pfft! Stop wasting time on it.")

So... lemme throw out a challenge to all the "volume devotes".... graph up some plays in which volume played a big role in the trade and explain why you think volume consideration was vital. Send me PMs, and I'll try to show where you could have made the same play sooner or coincidentally from the price charts alone. If you are right, I'll admit to being wrong. (While you're at it, please also send graphs of good trades you missed because of your consideration for volume.)