Trading by futures volumes: a preliminary analysis of the market
Chicago trading session begins at 7:20 and ends at 2:10 p.m.
Before you start trading, you need to learn how to identify a trend. For this we should be interested in three parameters:
1. the scope and rating prices of the contract (the first 3-4 prices).
2. the volume of the current week and the previous week.
3. the volume of the previous day and the day before.
To correctly determine the trend, you need to understand the interaction of time periods relative to each other and the volumes during these periods. You should always remember that the market "walks" from volume to volume:
Fig. 1. Schematic price movement in the market.
All we need is analyze the current market situation relative to last day, last week and this week's contract.
For a more productive evaluation of the trend it is best to use combo graphics. The point of combining (superimposing) one chart on another is that this approach allows you to see the "mood" of the market, namely in what zone the market is: in buying or in selling. For example, if we take the previous day and the current day and overlay both charts on each other, the picture in the market will be clear (see fig. 2).
Fig. 2. Combined graph of the euro.
Here you can see that the previous day (red) has generated volume, and the next (green) traded above this volume, therefore, the market is in the buying zone relative to the previous day.
We also need to determine market position relative to the contract price. For this purpose it is used weekly combo chartfor the global trend definition.
Fig. 3. Combined weekly chart of the euro.
Figure 3 shows that the contract price formed last week (green), and the current (white), went above this accumulation, therefore, the market was in the buying zone relative to last week and the contract price.
And the last thing you need to know in order to determine the trend correctly is the principle of forming a "corridor" of volumes. Let's look at an example. Weeks 10.11-14.11 (red) and 17.11-21.11 (green) have formed a price range that will serve us to determine the further market movement.
Fig. 4. Principle of forming a "corridor" of volumes.
Above the upper border of the corridor the market is conditionally in the buying zone, below the lower border - in the selling zone. If the current price on the market is in the corridor, do something not recommendedas there is no clear direction in the market. This principle should be applied to daily ranges as well as in intraday trading.
Trading the euro intraday
As previously stated, all intraday movements are based on intraday volumes of the day and past volumes. The volume of the day is formed from the volume of hours, the volume of hours from the volumes of smaller periods. The main emphasis in this topic will be on understanding intraday volumes.
Let's look at an example of the intraday market move on Monday 24.11.2008 futures on the EUR(EUA). We will look at each hour for 30 minutes, and we will track all price movements relative to the volumes generated.
00:00-01:00. First hour:
Fig. 5. Market behavior in the first hour of trading.
We can see that the first hour created maximum volume at 1.2665, and in the right figure we can see how it formed during this hour. The first 30 minutes is the maximum volume at 1.2651 and the second 30 minutes is at 1.266. At the opening of the hourly chart, we should have bought as the week's volume is 1.2515, market over volume - buying dominates. So, the first hour terminated on buy and formed volume at 1.2665. On the hourly combo chart you can see how it happened.
Fig. 6. Combo chart of the first hour.
00:01-02:00. Second hour:
Fig. 7. Market behavior in the second hour of trading.
The second hour worked to sell from the volume of the first hour. If you pay attention to Figure 7, we will see how the sale began directly from the volume of the first column, from the maximum volume of the first hour, and formed a volume at 1.262, where, at the current time, the maximum volume for the day was formed.
In the figure on the right you can see that the first 30 minutes of the second hour formed the maximum volume at the price of 1.2634 and the next 30 minutes approached this level and worked it off - the market sold out again.
On the combo chart you can see this workout (see Fig. 8). All 30-minute and hour levels are exposed.
Fig. 8. Combo chart of the second hour.
00:00-03:00. Third hour:
Since after a strong market movement, which we observed in the second hour, the market stops to accumulate new volume, the third hour we spent in the same flat mood. The price range is narrow, which formed the maximum volume of the hour for the current time, there was a transfer of the volume of the day at the price of 1.2588. This important point must be taken into account.
Fig. 9. Market behavior in the third hour of trading.
If we examine this hour at 5-minute intervals, we can see that the lion's share of the volume was formed in the second 5-minute period and in the sixth. This is clearly seen in Figure 10.
Figure 10. Formation of the main volume of the third hour of work.
And, of course, let's see what the third hour looked like at combo graphics (see Fig. 11).
Fig. 11. Combo chart of the third hour.
00:00-04:00. Fourth hour
After the passage of the fourth hour, which for the most part we spent in one place, consolidating, the fourth opened lower. As a result, it turns out that it is impossible to enter the sale immediately, as there was no level breakout, and the first 15 minutes were formed at the price of 1.2578.
Fig. 12: Work in the first 15 minutes of the fourth hour.
The next 15 minutes (3:15-3:30) opened above the previous ones, at 1.259 and above the volume of the previous hour. This hour broke to buy, from the volume formed in the 02:00-3:00 range. It is noticeable how the market goes from volume to volume.
Fig. 13. Formation of the volume of the fourth hour of work.
After the buy call the maximum volume of the current hour was formed at the price 1.2607, which can be seen in Figure 13. On the combo chart you can see that the market sold, and the third and fourth hours (green and red) formed a larger volume with the maximum volume of the day at 1.259, which turned the market in the other direction, to buy:
Fig. 14. Combo chart of the fourth hour.