S&P 500 Volume Profile

[viktor_k67]

By checking the Volume-by-Price (also known as Volume Profile) chart of the S&P 500 index (see the index chart below), we may diffidently say that over the past year the main trading activity on the S&P 500 index occurred in the $2078-2116 price range. This should not be a surprise as most of the time (from February until September) the index was moving side-way in this range. We also may say that in that price range the Bearish volume (volume during price decline) was bigger than the Bullish volume (volume during price advance) and bearish pressure was stronger.

chart from http://www.marketvolume.com/

Now the S&P 500 index is back in this price range and we may expect to see another volatile action. Since the lot of trading activity occurred in this price range is very sensitive level for many investors. Those who bought long in this price range and still in the position will have their losses reduced to minimum. These who went bearish in this price range and still did not close their position will have their profit dropped to minimum. For both parties it is psychologically sensitive area and many investors will be thinking about closing either their bullish or bearish position. Also, there are many technical tools (various support/resistance lines) which are quite popular and used by many technical analysts. Respectfully, we will have additional investors jumping into the market while S&P 500 is in this price range. All of this suggest that, most likely we will see the S&P 500having side-way action here again. We already had one bounce from the top (November 3-4 of 2015) and one bounce from the bottom (November 12-16 of 2015), and we may see more of such bounces.

 

[Cswim63]

By checking the Volume-by-Price (also known as Volume Profile) chart of the S&P 500 index (see the index chart below), we may diffidently say that over the past year the main trading activity on the S&P 500 index occurred in the $2078-2116 price range. This should not be a surprise as most of the time (from February until September) the index was moving side-way in this range. We also may say that in that price range the Bearish volume (volume during price decline) was bigger than the Bullish volume (volume during price advance) and bearish pressure was stronger.
I never really bought into the assumption that once a price retraces to a former, let's say, value area, that it was these long term bulls and bears just waiting for this opportunity to square off. That means fight if you are not familiar with the term. It may in fact be true but its just an unproven assumption. To assume that these long term holders are now made whole makes sense but we really don't know how many of them puke out their, positions and panic. It's kinda like the supply/demand curve in economics. It's taught like its a law but no one can prove it.--Swimr

chart from http://www.marketvolume.com/

Now the S&P 500 index is back in this price range and we may expect to see another volatile action. Since the lot of trading activity occurred in this price range is very sensitive level for many investors. Those who bought long in this price range and still in the position will have their losses reduced to minimum. These who went bearish in this price range and still did not close their position will have their profit dropped to minimum. For both parties it is psychologically sensitive area and many investors will be thinking about closing either their bullish or bearish position. Also, there are many technical tools (various support/resistance lines) which are quite popular and used by many technical analysts. Respectfully, we will have additional investors jumping into the market while S&P 500 is in this price range. All of this suggest that, most likely we will see the S&P 500having side-way action here again. We already had one bounce from the top (November 3-4 of 2015) and one bounce from the bottom (November 12-16 of 2015), and we may see more of such bounces.

By checking the Volume-by-Price (also known as Volume Profile) chart of the S&P 500 index (see the index chart below), we may diffidently say that over the past year the main trading activity on the S&P 500 index occurred in the $2078-2116 price range. This should not be a surprise as most of the time (from February until September) the index was moving side-way in this range. We also may say that in that price range the Bearish volume (volume during price decline) was bigger than the Bullish volume (volume during price advance) and bearish pressure was stronger.

chart from http://www.marketvolume.com/

Now the S&P 500 index is back in this price range and we may expect to see another volatile action. Since the lot of trading activity occurred in this price range is very sensitive level for many investors. Those who bought long in this price range and still in the position will have their losses reduced to minimum. These who went bearish in this price range and still did not close their position will have their profit dropped to minimum. For both parties it is psychologically sensitive area and many investors will be thinking about closing either their bullish or bearish position. Also, there are many technical tools (various support/resistance lines) which are quite popular and used by many technical analysts. Respectfully, we will have additional investors jumping into the market while S&P 500 is in this price range. All of this suggest that, most likely we will see the S&P 500having side-way action here again. We already had one bounce from the top (November 3-4 of 2015) and one bounce from the bottom (November 12-16 of 2015), and we may see more of such bounces.

If you want to say that once price retraces to a former value area--especially a big value area--it tends to encourage volatility, I'd tend to agree but I'd like to see the numbers. Thanks

 

[Cswim63]

If you want to say that once price retraces to a former value area--especially a big value area--it tends to encourage volatility, I'd tend to agree but I'd like to see the numbers. Thanks

I think you would need some behavioral economics to back this up. Take a random sample of 10k investors over the last 30 major selloffs in any market. How many are left holding until price goes back to the level you have chosen?'
How many deserted their positions when they couldn't take the heat any more?_I think most. The "investors" who participate in the new uptrend may not be the same as in the downtrend.

 

[Cswim63]

I think you would need some behavioral economics to back this up. Take a random sample of 10k investors over the last 30 major selloffs in any market. How many are left holding until price goes back to the level you have chosen?'
How many deserted their positions when they couldn't take the heat any more?_I think most. The "investors" who participate in the new uptrend may not be the same as in the downtrend.

Another way to look at this is--what is the average holding period for any underlying? It's a lot shorter than it used to be. The people you are talking about exist--but not in numbers large enough to impact the market except at extremes. They tend to buy high and sell low. Most of the trading is done by traders. Period.

 

[Cswim63]

By checking the Volume-by-Price (also known as Volume Profile) chart of the S&P 500 index (see the index chart below), we may diffidently say that over the past year the main trading activity on the S&P 500 index occurred in the $2078-2116 price range. This should not be a surprise as most of the time (from February until September) the index was moving side-way in this range. We also may say that in that price range the Bearish volume (volume during price decline) was bigger than the Bullish volume (volume during price advance) and bearish pressure was stronger.

chart from http://www.marketvolume.com/

Now the S&P 500 index is back in this price range and we may expect to see another volatile action. Since the lot of trading activity occurred in this price range is very sensitive level for many investors. Those who bought long in this price range and still in the position will have their losses reduced to minimum. These who went bearish in this price range and still did not close their position will have their profit dropped to minimum. For both parties it is psychologically sensitive area and many investors will be thinking about closing either their bullish or bearish position. Also, there are many technical tools (various support/resistance lines) which are quite popular and used by many technical analysts. Respectfully, we will have additional investors jumping into the market while S&P 500 is in this price range. All of this suggest that, most likely we will see the S&P 500having side-way action here again. We already had one bounce from the top (November 3-4 of 2015) and one bounce from the bottom (November 12-16 of 2015), and we may see more of such bounces.

Find me the guy who's been holding gold the last five years and tell me what his plans are.

 

[viktor_k67]

I think you would need some behavioral economics to back this up. Take a random sample of 10k investors over the last 30 major selloffs in any market. How many are left holding until price goes back to the level you have chosen?'
How many deserted their positions when they couldn't take the heat any more?_I think most. The "investors" who participate in the new uptrend may not be the same as in the downtrend.

There are always traders who deserted their position and I agree that the bearish traders are closing their position faster then the bullish traders.

Still, as an example, if we have 10K shares traded in $10-11 price zone and we have 10,000K shares traded in $11-12 price zone, by assuming the ratio of traders abandoning their position to the total number of participating traders stays constant then by probability we will have bigger number of traders with open position in $11-12 price zone than the number of traders with open position in the $10-11 price zone

 

[Cswim63]

There are always traders who deserted their position and I agree that the bearish traders are closing their position faster then the bullish traders.

Still, as an example, if we have 10K shares traded in $10-11 price zone and we have 10,000K shares traded in $11-12 price zone, by assuming the ratio of traders abandoning their position to the total number of participating traders stays constant then by probability we will have bigger number of traders with open position in $11-12 price zone than the number of traders with open position in the $10-11 price zone

OK so there are more traders with open positions in the previous value area
What does this mean? When you get to a balance area it doesn't necessarily mean greater volatility. Actually the reverse is often true.

 

[Cswim63]

OK so there are more traders with open positions in the previous value area
What does this mean? When you get to a balance area it doesn't necessarily mean greater volatility. Actually the reverse is often true.

Traders absorb each other's positions once an equilibrium is reached. You need to define volatility. In most cases in equities it means selling, breaking of support. Fear. That doesn't happen in trading ranges.

 

[viktor_k67]

Traders absorb each other's positions once an equilibrium is reached. You need to define volatility. In most cases in equities it means selling, breaking of support. Fear. That doesn't happen in trading ranges.

High volatility on fear and high volume usually seen at the bottom of supports. Range trading is usually seen at the resistance levels. The point of the chart above to show that the current levels we will have bigger then usual number of traders who will be facing dilemma whether to close position with small loss/win or continue to hold the position opened. It is not fear it is just not all traders are strongly believe in their positions. For those traders these level is sensitive and we may expect another side-way trend. We already had one bounce down on Nov 3 and one bounce up on Nov 16 and we may expect more.

 

[Cswim63]

High volatility on fear and high volume usually seen at the bottom of supports. Range trading is usually seen at the resistance levels. The point of the chart above to show that the current levels we will have bigger then usual number of traders who will be facing dilemma whether to close position with small loss/win or continue to hold the position opened. It is not fear it is just not all traders are strongly believe in their positions. For those traders these level is sensitive and we may expect another side-way trend. We already had one bounce down on Nov 3 and one bounce up on Nov 16 and we may expect more.

Right but wasn't the premise of the thread that volatility would increase? Maybe I'm missing something. We are in a trading range by definition but that's most of the time anyway.