Originally Posted by
Ellis Wyatt
Pascal,
This is a think-piece question, not urgent or even all that important for any trades or on-going business, but a speculation based on this thread, that I've been pondering while watching the tape, and starting to gather some data for:
The effective volume is volume which moves price within a minute. The move may be as small as $0.01, or even smaller. I recall that the size of the intra-minute price change is not addressed in the calculations - and that's the way I'm doing it. A move of $.25 has the same weight as a move of $0.0075. In both cases, the volume moved the price, so it counts as effective volume.
Now, I've studied the book's false-positive cases, and I've had a couple of those myself. MFB was one I posted at the old forum - it took over a quarter to escape from that one. But more interesting (to me, anyway) are the price pops which come out of a clear blue sky, with no warning, no LEV, no SEV, no nothing visible. Which led me to wonder - the book is over 3 years old. It's taught in some business schools, and I recall you even directly address fund managers about how to conceal their movements in one of the later chapters. What if they listened? After all, the structural problems of large fund accumulation have not changed.
So I've been trying to postulate how to create a notional algorithm specifically designed to conceal effective volume as ineffective.
1. Starting with the prior day's tape, and the current day's evolution, I would calculate the equi-power volume level. That variable would be re-set as needed, perhaps even multiple times per day. That level becomes my per-trade volume ceiling. Never trade more than that in a single minute.
2. For each trade, I would set the lot size to be ([variable 1.] - [a randomized percentage of the current offer])
3. Within the algo there would have to be a countdown clock which resets to 59 seconds each minute, starting on the first second of the open. Trades would start at some second above 0, based on how many shares to target that day, divided by the 390 trading minutes, then played out against the actual liquidity, but always leveled so as to have the greatest chance of spanning a price level accumulation across the minute boundary. For example:
If this were the snapshot at +3 seconds...
Bid Shares| Shares Ask
20.00 1000 900 20.01
20.00 200 200 20.01
20.00 100 2000 20.01
19.99 500 1600 20.02
... the algo would buy 800 @ +2 seconds, then 100 @ + 1 seconds, then 2100 at +59 seconds of the next minute. Presuming, of course, the offers stayed stable. This would be happening at hyper speed, so the algo would be dynamically sensitive to such changes, polling the book several hundred times per second. In each trade burst, a portion of the offered lot would be left for someone else to clean up, so as to extend the odds of leaving a price level "tail" across the minute boundary.
As long as price levels are traded across the minute boundary, and with the equi-power boundary governing lot size, this algo's activity becomes invisible to the EV formula, and its volume becomes ineffective volume.
As a pseudo-Excel formula, isn't it true that Ineffective volume could be identified by reversing the volume detection formula from:
=IF(price now= price previous, 0,(((ABS(price previous-price now)+ABS(price now-price previous)) / (high now-low now+ABS(close now-close previous))) * volume now) * IF(close now-close previous>0,1,-1) )
into:
=IF(price now= price previous, (((ABS(price previous-price now)+ABS(price now-price previous)) / (high now-low now+ABS(close now-close previous))) * volume now) * IF(close now-close previous>0,1,-1),0 )
?
Or, more simply, reverse the true and false actions; make the "true part" of the formula the volume calculation, and make the "false part" of the formula zero - the result, I think, will return the ineffective volume?
The goal of such a survey would be to sample a set of high-volume stocks with flat or declining LEV, and look for a steadily rising large ineffective volume flow compared to a prior look-at period, and see if that is similarly associated to later price moves, as with effective volume. Or, stated as a motive - the purpose is to try to detect whether anyone has specifically attempted to cloak themselves from the EV detector.
It is no great effort - I do EVs by the dozen most days anyway. But has anyone thought about something like this, for the vast majority of stocks which lack strong LEV most of time whose prices pop with no warning?
Reply With Quote