Tracking Volume Toward and Away From Value: Understanding Evolving Market Structure

One topic I'll be taking up in future posts is the location of shifts in relative volume vis a vis the market's most recent estimates of value. If, for example, we define a value region around the market's average trading price of the prior day, we can see how relative volume (volume for a given time period compared to the average volume at that period) behaves during moves to and away from value. This provides an indication of whether large traders (who account for large changes in relative volume) are accepting or rejecting the market's estimate of value. Such acceptance or rejection is of potential importance in identifying non-trending versus trending environments. See my prior post on this topic for more background.

An interesting study linked on the CME Group site breaks down volume participation in commodity markets to see how various groups behave relative to estimated market value. The PowerPoint PDFs are particularly informative. As readers know, I've also found Market Delta to be a helpful tool in gauging the activity of large traders. I'll be exploring the use of that and other tools in upcoming posts, with an eye toward identifying the structure of market days as they unfold.
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