Short volume vs. Long volume

[goryl]

Is there any indicator or script out there that separates Short volume from regular volume.

[grant]

Short, Long volume

If this is a reference to a unique technical study, I can't help.

If your referring to normal trading volume then you would simply divide the total volume by two.

Just to clarify - one contract, share or option = 1 volume. Obvious, but bear with me.

I'm thinking aloud from hereon.

For every one short position (1 volume) there must be one long position, ie for every seller of eg, 10 contracts, there is a buyer(s) of those 10 contracts (the opposite side of the trade).

Maybe your thinking in terms of up and down ticks. A down tick reflects a sale, presumably based on the fact that the trade was at the bid or below the ask (trades can take place within the spread which would question this assumption). But if a sale is bearish, isn't the other side (a buy) bullish? You may be desperate to close (sell) a long position but there is a lack of interest from buyers at the current level. Therefore, you lower your price until a buyer is found.

This would represent a fall in the price, ie bearish, but the opposite side are bullish. So isn't the net effect neutral?
And therefore, shouldn't we question the concept , 'up' and 'down' ticks.

A bull needs a bear to trade, and vice versa (that's Latin)

If it is as simple and clear-cut as the top few lines suggests then I doubt whether there can be any extrapolation (then again, when has that been a limiting factor in TA - that will stir up a few).

Excepting a few basic (tenuous) support/resistance levels on bar charts, I don't use TA, preferring actual or perceived risk (and the shifts) reflected in volatility. However, lately I'm beginning to consider the potential in the analysis of volume (I've yet to get round to it).

Take a look at www.marketdelta.com. There are some really interesting ideas.

I may have a few (a lot of) drinks tonight.

A good weekend to all - leave the charts alone.

Grant.

[DuaneG]

Hi Goryl,

It would difficult to differentiate long and short volume, as any volume could be interpreted as long or short. A better way of looking at this would be trades executed at or above the asking price and trades executed at or below the bid. As shorting is basically selling, trades executed at or below the bid could have the possibility of a being a short position. The same follows suit as any trade executed at or above the ask could be perceived as a long position. I don't know of a script that could accomplish this off hand, but if any does, please feel free to chime in. Thanks.

[bfry5282]

Long or short net positions

Yes, it's fairly easy to differentiate buying and selling, and it's based upon simple assumptions. Big money buys mainly at the bid, and sells mainly at the ask, with almost no exceptions. So you can simply tally volume per trade as to whether it's at the bid or at the ask.

You need to be an expert at EFS programming to do this.
This is not a simple matter, although it's conceptually simple; but I do it all the time; and am able to tell you whether the smart money is relatively long or short against the public, over a moving window of time. You would need to PM me for more info. My analyses are for futures contracts only, which you should be trading, rather than equities.

Yes, every trade involves a buyer and seller (and one of them is a loser!); so what you really want to know is whether the smart money is long or short. That tells you where they will move price.

[its1111]

short vol versu long vol.

BFRY
I would also be very interested in this study, but no nothing about programing, I am not sure if you charge or what I would need to do to get a study like this, but I don't mind paying for it. So any information would be great,
Thanks
Mark

[bfry5282]

Private message me, or email bfry at mindspring dot com

[grant]

Re: Long or short net positions

Dear bfry5282,

"Big money buys at the bid, sells at the ask"

Assume I'm big money X and market is 100-105 (bid-ask), any size. I buy a 1000 at 100 and simultaneously sell at 105. Profit = 5000. Repeat ad infinitum/nauseum. Sounds like easy money.

This is (almost) riskless arbitrage. Are are you referring to market-makers? I thought futures were order-driven, not quote driven.

(Duane, your remark about selling (buying) below (above) the bid (ask) is a prelude to a market panic - if size cannot be supported at the market, there is something serious brewing and this may induce panic. Or it could just represent a very badly executed trade. Further, a sale (buy) is not neccessarily an outright short (long); it could also be a sell (buy) to close an existing long (short) position, perhaps proft-taking (cutting a loss) or even a hedge.

The implication is the likes of Goldman Sachs, Deutsche Bank, etc never/can't lose. And they're never on the wrong side of the market?

Traders in the pits mostly know who is trading size, and the side of the market. If your theory is correct, we have a paradox: assume market at 100-05. Goldman buys even on a 1000. Who are the big sellers? Presumably, all the smaller players and locals. But they would know the big players' strategy and try to follow suit. Therefore, they wouldn't be looking to buy, not sell. That being so, Goldman would not be able to buy - unless the price was right for the sellers, ie above the ask.

On a tick chart or time and sales, this trade would register as a down tick or red (bearish), respectively when it is actaully bullish (it's a buy). To confuse the issue even more, it could be a buy - or a sell - on a fast-rising bid, theoretically a sale above the previous ask. Therefore, with ever great difficulty could one differentiate between a sell at the bid or a buy on the bid.

Nobody will short at 100 if they know they can't cover until 105. If Goldman is on the bid, it could just as well be a limit order (if they use InteractiveBrokers' TWS, this would automatically become a market-order - private joke, that)

We all try to sell (buy) on the ask (bid); somtimes it works, sometimes it doesn't.

I've taken my example to its logical extreme but I believe the general principle is sound. I'm sceptical re your claims, my friend.

On a lighter note. I haven't tried this but it should work. I'll try and let you know.

If we accept that down ticks are more likely to be sales or short positions, the change (from the previous) on a trade will be a negative value. Negative values would be converted to positive and summed. For example. Assume the follwing values in a spreadsheet (negative are down-ticks):

A B C
1 -2
2 -3
3 1
4 1
5 -1
6 -2

In cell B1 enter: =if(a1<0,abs(a1)) [This would return the value 2]
. Alternatively, enter: =if(a1<0, a1,0) [This would result is a negative value for a sale but would still differentiate.

Copy down the column for all figures. What we are doing here is differentiating and converting negative values (down ticks) or sales. In column c enter =sum(b1:b6) or whichever you chooose as the last cell. The example above would = 8 (sales).

Put this in perspective by also summing the buys (positive numbers) and comparing the two; or divide the two for short-to-long ratio:

Via cut, paste (not copy, paste) move the =sum(...) from column c to column d. In c1 enter: =if(a1>0,a1,0) [This would return 0 (zero) because a1 is negative or a sale.]

Copy down the column for all figures and enter =sum(c1:c6). The result here would be 2 (buys). Dividing this by 8 above (sells) = 0.25. Any figure below 1 (more shorts than longs)would indicate a bearish bias; above 1 (more longs than shorts) a bullish bias.

That's It. Goodnight.





above

[Gavishti]

This efs may be of some help. Historical volume is in blue. The bid/ask data is only available in realtime (and tick replay). When the bid/ask is available it displays:

• at or above ask (green)
• between bid and ask (yellow)
• at or below bid(red)

Volume is plotted as a histogram. Average (SMA) volume is the thinner, lower line. The higher, thicker line is a multiple of average volume. The colors, thickness, and length of the moving average are editable from Edit Studies.

[DuaneG]

Thank you Grant for further detailing my explanation of the "buy at the ask", sell at the bid" comment on Friday. Extreme events, either rallies or capitulations are when this tends to happen more often than not. Those who are interested in momentum trades and don't like having their orders pushed down on the book are quite likely to step up to insure filled orders. This also depends on the situation, as most traders I know don't like bid/ask spreads that are country mile wide. Thanks again.

[bfry5282]

Market manipulation

Grant, you bring up some good points.

"Assume I'm big money X and market is 100-105 (bid-ask), any size. I buy a 1000 at 100 and simultaneously sell at 105. Profit = 5000. Repeat ad infinitum/nauseum. Sounds like easy money. "

It is easy money. The catch is that in order to play this game of dominating the inside, you have to be able to absorb price adversity, and muscle price up or down. They do this simply to moving the bid/ask. Watch pre or post regular market trading in YM, for example. Any retail buyer is immediately screwed, and is not allowed to make money. When "they" want to move the price, they just turn a dial, and the bid/ask is placed at any level they choose. If you wanna trade, then you have to trade at their price.

Also, if you look at an issue like ES (eMini s&p 500), virtually no trader can buy at the bid, nor sell at the ask. The MM's in futures "crowd" the inside so that only they can benefit from the spread.

"This is (almost) riskless arbitrage. Are are you referring to market-makers? I thought futures were order-driven, not quote driven. "

Not sure what you mean quote/order driven, but a futures contract, just like an equity is subject to price elasticity and perceived future value. Therefore it can be traded with no risk by those who can move price at will. As traders we have to predict where price will move, before it moves. To do that, all we need to know is how the greedy MM's tend to move price. I say they move it to volume inflection points, because that's where volume spikes up and buyers/sellers disagree and enter/exit.

"I've taken my example to its logical extreme but I believe the general principle is sound. I'm sceptical re your claims, my friend."

Well, I could probably prove to you that this is exactly what happens, which is that MM's in equities or futures absorb retail buying and lift the price in order to get volume. They are losing money on paper as they become relatively short. They absorb retail selling and lower price, thus losing money and becoming relatively long. Once they have acquired their relative positions, then they move price against the retail traders they just manipulated. They need the gullible retail public, because they don't really want to buy and sell from each other! The retail guys are the breakout/breakdown traders desperately trying to make money even though they are paying the spread. Some of those do make money, but they buy and sell retail at times when high value moves are about to take place.

They never lose because they decide exactly how the market is engineered from day to day. Let's say they buy into a selloff, and end the day very long against the public (since they were buyers). Typically the next day, price will gap up, and their long inventory will be liquidated. I'm not sure this would come as a surprise to anyone who's thought about it very much. Lots of analysts claim markets are engineered on a 3 day cycle, or something like that.

Downticks represent retail selling to the bid, and MM's buy. Because it's MM activity (smart money) that counts, downticks are likely to be long positions as MM's average long against the selling public.

It's interesting, no matter how you look at it, right?

[its1111]

Market makers

have listened to many people here talk about market makers and how they manipulate the markets like their is some big conspiracy.
I agree that specialist on the New York stock exchange do these things, but they also take on huge risk. If they are net long and something like 9/11 happens they eat a lot of crow.
So for the risk they are the bank, but they also have to deal with huge hedge funds, I once watch a video of Paul Tudor Jones buying 90 million dollars worth of S&P contracts, would you like to stand in his way, I don't care if you are Goldman Sacs, there are some big players, there are also options market makers hedging themselves and other big players, so I am tired of hearing there is some big conspiracy, if you want to absorb the selling of the market on a smaller scale, then you can play their same game and no I don't have anything to do with market makers, I am just a trader.
The one thing that iratates me though is when I hear people talking about things that they are only half right on. there are no Market Makers in the futures pits. There are big players like Goldman, but would it interest many people to know that when the trader from Goldman steps into the pit many traders fade his trades. He is wrong just like the rest of us, there is so many things going on in the pits that most people don't realize, a trader from a large firm like Golman can be selling at the same time he is buying electronically, do you think that they are stupid enough to just let everyone piggyback off of them, Or someone from the options is hedging his bet. So lets try to be better traders, take responsibility for our good trades or bad trades but if you made a bad trade don't blame it on some market maker conspiracy, learn to trade better.

[bfry5282]

Trading in futures

I wouldn't call it a conspiracy, as such == it's just trading, and the powerful players will always win over the weaker individual traders which they prey upon, basically. As an individual trader, our task is to predict where big money will move price, by knowing as much as possible how they trade against the retail public. How they induce rallies, how they induce selloffs, where they find volume, and how they exploit retail traders expectations by moving price.

Those with deep pockets can absorb price adversity, scale/average into positions, and move price in order to profit continuously. I don't believe they assume much risk, except perhaps some disaster which affects everyone such as 9/11.

I'm just talking about the electronic emini futures (non-commodity) markets on Globex or eCBOT, and the trading patterns which data analysis reveals. I don't have any knowledge of pit trading. When MM's are long, they move price upwards to sell. When short, they move prices lower to cover.

MM's (large players) in futures perform the same function as on the Nasdaq. They largely control price; and they are buyers for retail sellers, and sellers for retail buyers, providing liquidity. They willingly buy and drop the price (inducing retail selling, and getting a better average long position); and they sell while raising the price (inducing retail buying, thus getting a better average short position).

Then, when buyers/sellers enthusiasm weakens, they move price against those retail players to shake them out of their positions. Also, apart from moving price, they profit from the spread which they dominate, which is why they also seek maximum volume.

So all I'm saying is that this is exactly what happens in all trading environments. The Nasdaq would work this way if everyone were forced to trade through Island, and it would be much easier to figure out what was happening.

[Gavishti]

bfry,

Your theory is very nice and certainly has some merit regardless of whether it is perceived as a conspiracy (don't believe it) or not. My question to you is have you been able to develop this into a clear, simple set of rules that even a computer can understand?