Hello fellow traders,
I’d like to share with some of my ideas regarding solving one interesting Forex problem - [B]Real Volume[/B]!
As we all know forex is decentralized and as the result we cannot see and use the real volume indicator in our trading. The only “volume” we see is the Tick Volume which is just a number of price changing events which happened - number of ticks up and down. But we understand that it’s not really a volume - for example one can open a position with 1 lot - and it could be one tick, another guy then opens a position with 100 lots and it will be also only one tick. So as the result we have a volume of 101 lots (contracts whatever…) BUT the tick volume will show us only 2. So if on the next bar it will be another two guys - one opens 1 lot and another also opens 1 lots the real volume will be 2 (50 times smaller than previous one!) but the tick volume will be the same - 2.
So I’ve got an idea on how it could be solved.
First of all it would be interesting to hear - whether you’re are really interested in have the real volume in your terminals? If you’re fine with using tick volumes - good for you and you can skip the rest of this post
If an answer is “yes” - meaning you would like to use the real volume - than let’s thing about following approach. Feel free to criticize it, post any of your ideas, comments etc - I would really appreciate it!
So how we can get the real volume? My idea is following. In order to get the real volume we need to have some centralized storage of the data - and this storage should be broker- and platform-independent. So if we have 10 brokers supporting mt4 platform and 5 brokers with let’s say ZuluTrade - they should all see the same picture. The idea is to create a special indicator which - once added to the chart - will be posting the information on current positions on this terminal to centralized DB and on the way back will be receiving the information about total positions sizes for the given pair. This approach means that person who uses this indicator and wants to see the volume must [B]voluntarily[/B] become the contributor himself. This is very important point and my question to the community here - how do you think, would you share some info about your positions in exchange of the info about other positions? In general - would it be interesting for people for such kind of exchange? Please not, that the information is 100% anonymous - it will not store any info about [B]who[/B] got what positions - only the size itself.
Second thing - it will work only on big numbers. If there will be only 300-500 traders using it the data will not be reliable. So it will only work when there will be 1000’s and tens of 1000’s of volunteers/contributors.
The correlation between [I]spot forex[/I] volumes and [I]futures[/I] volumes - which are readily available, just by paying a very low price for them - is probably about 99.9%, so volume is effectively available.
I don’t trade without it, myself, but as the saying goes, that’s “just my perspective”. :8:
A few months ago I saw an academic paper (somewhere on the web, but I’m afraid I didn’t save the url :8: ) which reported on some independent academically-financed research which did actually purport to show, for the period studied, and for the currency/ies studied, that the correlation appeared to be pretty perfect. It must be terribly difficult, labour-intensive research to do, requiring the cooperation of many parties? I can’t even remember, now, exactly how they did it. For a real sceptic, it probably had some limitations and some questions to be asked, I suppose.
I didn’t pay more attention to the detail at the time simply because it seemed to me, more or less, to be stating the obvious anyway.
I have no reason to imagine that there should be any disparity between the two (especially with all the HFT’s in the market, these days?).
The most proximal month’s futures volume is certainly good enough for me.
I hope it doesn’t sound impolite or dismissive (because that isn’t my intention at all) but I think you may be going to great lengths, with what you describe above, to solve a “problem” that doesn’t actually exist, because this information’s actually available anyway?
Ok, looks like it’s not really hard to check what is difference between real volume vs tick volume. Here are two screenshots - one from FXCM’s TradeStation terminal with Real Volume (they have this indicator in their platform) and another from FXCM’s MT4 with tick volume (both are H1 timeframe):
Yes, in general they look similar - but not really the same. For example yes, we can see the spike of the volume in the left part of the - it’s similar on the both screenshots. But we can look at the righht part - last 10 - 15 bars. And we can see there that bars of volume are different. I’ll try to extract data to excel and check the correlation.
Well, this is a very different subject. Contract-volume/lot-volume and tick-volume are of course two different things, but there’s an overall, approximate [I]proportionality[/I] between them, according to the average order-size.
In the case of ES futures, for example - perhaps the best example, as it’s by some margin the world’s highest-liquidity futures instrument - by comparing the two, you can work out that the average order-size, averaged out over a 24-hour period, is about 3 contracts/lots. Clearly this is going to vary from time to time, according to the number of HFT’s in the market, and so on.
(I was slightly surprised when I learned this: I had guessed that it would be quite a bit higher.)
Personally, I find volume-charts much more helpful and reliable than tick-charts, although I think even tick-charts [I]that represent the whole market[/I] are more useful than time-charts.
Regarding “tick-charts that represent the whole market” - it’s actually another question: when I’m trading thru my broker (for example its could be forex.com whatever…) - and I see tick volume there - so does it the tick volume from the whole market or my broker only. I presume that it’s the second - e.g. if the broker is quite small (not something like FXCM or Alpari) that the number of ticks will also be small and it will definitely differ from number of ticks on another broker.
BTW what I’m actually experiencing is this kind of effect: I have a strategy which relies heavily on tick volume (of course I would rather prefer the real one but… ). But when I’ve tested it on 3 or 4 different brokers the results are different - maybe not as critical as having the strategy profitable on broker A and losing on broker B - but the profits could differ 1.5-2 times, and in general the behavior is different.
That’s why I’vestarted thinking on how to get the real, market-wide volume.
Not a forex future, I know - I just picked it as an example because it’s the world’s most liquid futures contract. (And it’s the one for which I’ve most recently measured the average order-size). There’s no “big mystery” about these things: anyone can measure it.
This information’s available, as much as it ever can be. As explained above, all you need to do is subscribe to it, and look at the most proximal month’s future volume. That’s directly proportional to “spot” volume, for the reasons explained above. Sorry, I’m not trying to belittle your approach at all, but it really [I][U]is[/U][/I] as simple as that. You’re honestly trying to solve a “problem” that doesn’t exist. :8:
Personally, I simply use it as a way to define the bars/candles from which I trade (and it seems to me that doing this actually resolves that question).
Instead of having (for example) a chart with 15-minute bars, each of which will perhaps represent four or five times as much market input at one time of day compared with another, I define the bar-duration as being a fixed number of lots/contracts traded, so that instead of trying somehow to compensate mentally for low-volume times of day and act accordingly at those times (which I wouldn’t really know how to do anyway, without getting involved in some really complicated stuff which it seems far easier to avoid), I can have it defining the chart, and just trade “normally” (i.e. do exactly what I was doing before … and get much more reliable and consistent results.)
In a sense it’s one of those “now I see it …” things: I don’t really quite understand how I managed before doing it this way, or why I continued with it for so long. :8:
(Note: I’m actually trading the futures, not just using the futures chart to trade spot forex, but of course one could easily do that instead: just run the futures chart as one’s “main trading chart” and enter/exit the spot forex trades from any other interface desired.)
). But when I’ve tested it on 3 or 4 different brokers the results are different - maybe not as critical as having the strategy profitable on broker A and losing on broker B - but the profits could differ 1.5-2 times, and in general the behavior is different.