A Review of XOP Volume
Sep 10, 2017 Trading Blog
I am basically a technical trader, and the only two pieces of information that really mean much to me are price and volume. On most days, it is volume that is the more important of the the two. I used to be a huge CNBC junkie back in the internet bubble days, back when CNBC was relevant and useful, and my favorite person on there, Art Cashin, would always know whether the volume was high or low for ANY point during the day. He called it the “run rate” and it is just something that I always found incredibly useful.
The key to volume is to always know WHO you are playing and trading against. Are you trading against smart money or are you trading against market makers? Volume tells you this. Volume confirms price. If price is supported by volume, then be willing to be more trustful of the move. If price is not confirmed by volume, then be suspicious. There is a great book by Tom Williams titled “Mastering the Markets.” In it, he discusses his theory of Volume Spread Analysis. It is probably one of the best books out there and a big part of how I trade. You can find a free copy here.
I keep a running total of volume for the past 50 trading sessions in the XOP, using 30 minute blocks during the day. I track an average volume for each individual 30 minute block, as well as an average running total for the day. Here is a look at where things stand currently (share values in 000’s):
Time Avg Vol Run Rate
10:00 1482 1482
10:30 1386 2868
11:00 1074 3942
11:30 916 4858
12:00 976 5834
12:30 630 6464
1:00 572 7036
1:30 670 7706
2:00 570 8276
2:30 759 9035
3:00 641 9676
3:30 777 10453
4:00 2520 12973
So, from the above chart, if we look at the clock during the trading day and it says 11:30, then I know that on average we should have traded about 4.8 million shares (average cumulative 9:30 to 11:30 volume over the last 50 trading days). I also know that during the period from 11:00 to 11:30, we should have traded about 916 thousand shares (average 11:00 to 11:30 time block volume over the past 50 sessions).
You can use any time period you want, I just prefer the 50 period figure because the 50 day moving average is something that I use to judge the larger trend. Matching up the volume and price over the same larger trend timeframe just works for me. Also, these numbers are not exact, they are just a very handy quick reference to gauge an average. Precision is not required and I do not use pre-market or after hours volume in my numbers. There is also one other quirk in these numbers, I do not use the 30 minute bar from the 10:30 to 11:00 am Wednesday time period. That bar is usually huge due to the EIA release and really skews the overall number. We are simply looking for an average here to use every day of the week and don’t want that one bar to abnormally affect the count.
Here are two weeks of XOP data, the first is from the week of July 31 – August 4, the second from August 21 – August 25:
Time 7/31 8/1 8/2 8/3 8/4 Avg Run Rate
10:00 2000 1100 4400 1200 1900 2120 2120
10:30 1900 554 3700 2000 1500 1931 4051
11:00 1800 779 3200 1200 1300 1270 5321
11:30 688 1400 1400 477 1000 993 6314
12:00 900 1300 1600 863 415 1016 7330
12:30 605 467 586 1000 680 668 7998
1:00 635 870 506 1000 561 715 8713
1:30 410 580 847 662 525 605 9318
2:00 860 185 358 1500 354 652 9970
2:30 2000 863 1900 2200 508 1494 11464
3:00 517 1200 2700 1300 1100 1363 12827
3:30 561 529 3500 2600 1300 1698 14525
4:00 2000 2800 3800 5100 2700 3280 17805
Time 8/21 8/22 8/23 8/24 8/25 Avg Run Rate
10:00 665 1000 540 828 1200 847 847
10:30 3200 1000 813 1700 900 1523 2370
11:00 1100 496 846 440 365 600 2970
11:30 492 900 821 430 528 634 3604
12:00 3100 546 667 900 444 1132 4736
12:30 556 562 706 234 357 483 5219
1:00 331 209 430 400 287 332 5551
1:30 213 268 204 267 135 218 5769
2:00 445 589 407 218 319 396 6165
2:30 681 551 225 232 210 380 6545
3:00 338 352 286 263 473 343 6888
3:30 379 303 318 248 547 359 7247
4:00 1200 1900 1800 1000 1600 1500 8747
Having a solid reference point on volume really brings out the difference in these two weeks. The first week was very heavy volume and something that is a great trading environment, the second set is a situation where the volume is almost non-existent. When paired with price, these two sets of data tell us WHO is involved in the market. In the first set, there are large traders present and the moves in price are considered more “real”. The second set is primarily market maker induced movement with none of the smart money really doing anything, just random noise. Knowing who is in the market is key when determining if price moves are “real”. I would gladly put money on the first set of data as that price move isn’t easily reversed. However, no way would I put money on the second set of data, as that light volume price move can easily be reversed when the smart money returns to the market.
Never depend on just price when you have such a great confirmation tool available in volume. The two should always work together. I see guys trading just price, and I really have no idea how they can possibly refer to themselves as “technical analysts”. The market gives us this information, and to just discard one half of the available information that the market gives is just foolish. Good luck this week and I’ll post my Monday outlook tomorrow morning.