What volume reveals during the open and the close

Question

Hi Anna

What a wonderful book Volume Price is! I can honestly say my eyes have been opened by your clear and concise method of analysing the markets. You have created a beautifully simple work of art that deserves all the attention it is getting. My congratulations! Anyway, to my question:

I’ve noticed that, every single day, regardless of market, that volume in the very last few minutes (often the last minute!), tends to be EXCEPTIONALLY high! I understand that it’s day traders winding out of positions before market close, but because of the somewhat artificial brick-wall close of day, would it be right to say it’s an inaccurate measure of market sentiment, despite the direction and type of price action? The reason I ask is I suspect it may confuse and skew otherwise clearer indications of Price/Volume manipulation.

Would it, in that instance, be better to ignore both the opening price bars and closing price bars and concentrate instead on price/volume relationships once markets have settled and before traders start to unwind positions for the day?

I’d also like to say a BIG THANK YOU for your fabulous website and consistently refreshing summation of almost each day’s financial activities – it must be hard work to keep it as up-to-date as you do. However, it’s an invaluable resource for us (and I’m sure I speak for all of us who visit your site regularly!). The clarity of thought is simply stunning. If I were to describe you as a computer, you’d be the latest, sleekest iMac!(Forgive me for the comparison!)

Answer

Hi – many thanks for your email and apologies for the delay in responding, which has been due to problems with the forwarding system I use from my site. This has resulted in a number of emails simply not coming through. This has now been resolved, but as you can imagine there is a bit of a backlog! What can I say but thank you for your very kind, warm and generous words. And to be compared to an imac is high praise indeed. David & I are ma addicts, having one imac, 2 macbooks & 2 ipads! Also delighted you find the site and analysis useful.

With regard to the surge of volume at the beginning and end of the physical session you can see this phenomenon in all instruments and markets. It is actually an excellent way to both confirm, and also understand the power of the volume price relationship and is one I often point ‘non believers’ to discover for themselves.

Whilst many markets now trade electronically, it is always interesting to watch the open particularly, as those first 2 or 3 minutes are likely to give an indication for the short term direction, if not for the complete session. Where a market has been trading electronically the physical open will often result in a gap up or gap down and play catch up and here it is volume which will then confirm whether these gaps are filled or not. The close is less significant, particularly where there is an electronic market as trading simply continues and carries on from the close of the physical. Where you have a physical market then it is indeed a good idea to wait for the market to settle, following the open and here volume in the first few minutes, coupled with price will give you an excellent view of the likely sentiment.

Where markets trade electronically then it is perfectly valid to trade 24 hours a day, and indeed on many occasions there are better and more sustained moves when the physical market is closed. A classic example recently was the statement from the BOJ which took the markets by surprise resulting in some terrific moves for the US indices in the Asian session.

I hope the above helps & thank you for your patience in waiting for an answer – Anna

By Anna Coulling

About Anna 1030 Articles
Hi – my name is Anna Coulling and I am a full time currency, commodities and equities trader. I have been involved in both trading and investing for over fifteen years and have traded many different financial instruments, from options and futures to stocks and commodities. I write and publish articles ( mostly for free ) for UK and international publications on a wide variety of financial issues, and in particular I enjoy helping others learn how to invest and trade.

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