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Trading Volume Should Be A Simple Matter -- But It Isn't
Will The Real XAU Volume Please Stand Up?
by James Kellndorfer
There's more to volume than meets the eye.
One of the questions facing technical analysts
today is deciding which dataset to use. This dilemma, which recently exposed
the ugly side of technical analysis with the XAU index, stems from poor
standards and definitions, and it is exacerbated by the fact that technicians
assume they know what they are working with. Data is now available in so
many varieties that a technician must be careful not to overlook the obvious,
and it is becoming far too easy to inadvertently mix datasets.
DATA: HUMAN OR ANDROID?
It is common for technicians to use end-of-day quotations, but when
was the last time you asked your data vendor what a quote actually represents?
Recently, I conducted a study and noticed discrepancies that led me all
the way back to the source -- the data. So I thought I would share my findings
with you.
First of all, what is it you want your end-of-day quote to represent?
Do you want a record of all prices from all exchanges, including electronic
trading portals and their volume? Or do you want to specify which trading
sessions should be included? These questions illustrate the complexity
of today's financial data, and there seems to be no end to the permutations
that currently exist.
The traditional view of a daily quote that existed before the advent
of 24-hour trading and electronic trading was that it represented an aggregate
of all transactions made on the exchange for a particular stock. But now,
trades occur both on and off the exchange floor and are made around the
clock both in the US and overseas. So what constitutes an end-of day quote?
This is particularly important when comparing individual stocks to a
broader group such as a sector index. This became apparent when comparing
the individual component issues of the Philadelphia Exchange's gold and
silver index (XAU) to the actual XAU. It was enlightening to discover that
data vendors use one definition for equity quotations and another for sector
indexes.
This discrepancy is particularly important when comparing volume. Wyckoff
traders are always studying the relationship between price and volume,
and it was intriguing to discover that the volumes reported for the XAU
didn't match the underlying component issues.
With regard to the XAU index, the Philadelphia Stock Exchange does not
report a total volume figure for the XAU index. However, two major sources
do, and they, interestingly, use different definitions. One vendor is a
premium data provider, while the other is a widely used "bread & butter"
basic service. What is remarkable is that neither vendor informs its users,
nor do they post a table containing a list of definitions.
Figure 1: Unaltered sequential volume. Here, the daily total
volume of each of the XAU component issues is displayed.
...Continued in the March issue of Technical Analysis of STOCKS
& COMMODITIES
Excerpted from an article originally published in the March 2004
issue of Technical Analysis of STOCKS & COMMODITIES magazine. All rights
reserved. © Copyright 2004, Technical Analysis, Inc.
Return to March 2004 Contents
