Volume and Quantity Analysis

Stock Price Action and Market Participant Groups

Before there were High Frequency Traders, Dark Pools, Twilight Pools, and an 80% automated marketplace, the most important indicator was price. Many Retail Traders learned simply to rely upon price action and rarely considered volume or quantity analysis.

Nowadays, with the dramatic changes to the trading world volume and quantity must be analyzed along with price. This fact challenges older strategies, however the reality is that the most dominant Market Participant Group in the market now has even more complex orders which gives that group the ability to buy giant share lots without disturbing price.

The only aspects of data that reveal giant lots are volume and quantity. A giant lot is 100,000 – 500,000 shares. The giant lot buyers do not want to disturb price or the trend of the stock, as they purchase millions of shares over time.

The Securities and Exchange Commission does not want the Buy Side Institutions buying in giant lots, to disturb price either. That is why Dark Pools are here to stay. The Alternative Trading System venues of which there are currently approximately 40 plus or minus, are where 99% of the giant lot orders are processed.

These are Over-the-Counter OTC orders using controlled bracketed Time Weighted Average Price and other time and price based orders that trigger automatically, but are NOT high frequency or low latency orders.

The reason the giant lots are so important for Retail Traders to find early on is that these giant lots are removing liquidity, which in turn will eventually create an imbalance in supply and demand for the shares of stock. When supply diminishes and demand rises prices can suddenly move up as High Frequency Traders, Professional Traders, and authorized participants discover the Dark Pool Quiet Accumulation by the giant lot investors.

Volume is the total number of shares traded or exchanging hands during a set period. This includes the volume data from Alternative Trading Systems, Exchange Communication Networks, and other off-exchange venues. There are two sides to each trade a buyer and a seller, but only ONE quantity which translates into volume of shares.

Quantity reveals the size of the lot which is critical to identifying Dark Pools, Professional Traders, and High Frequency Traders as opposed to Independent Investors, Smaller Funds, or Retail Traders.

Chart example #1 below has the Volume Indicator in the bottom chart window. It is a daily chart view so the volume shown is the total number of shares for an entire day.

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Trade Wisely,

Martha Stokes CMT

TechniTrader technical analysis using StockCharts charts, courtesy of StockCharts.com

Chartered Market Technician
Instructor & Developer of TechniTrader Stock & Option Courses

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