Article Reviews, Trading

Filtering Tick Data by Trade Sizes No Longer Relevant

There is an article here (Tick by Tick Volume Analysis – Updated!) that shows that statistics that filtering tick data by trade sizes is no longer relevant.

Previously traders might filter data to focus on trades with large sizes to focus on “big players that move the markets”. However with modern technology, large orders are now broken down in high frequency small orders in order to mask large trades, hence a huge majority of the ticks are now concentrated in the smallest lot sizes.

One thing I’ll add here is that with HFT, one should also ignore the bid/ask volume quoted and should just look at the actual trades done, since ‘phantom volume’ is not uncommon nowadays. You might think that a large volume sitting on the bid might prevent the price from dropping or a large volume sitting on the ask might prevent the price from rising, but you would find that these volume can disappear in a heartbeat. Similarly a small volume sitting on either bid/ask can turn out to be a sponge! Long story short, ignore the bid/ask volume and only look at actual transactions.

Oh, if you are not familiar with the instruments quoted in the study (i.e. ES, NQ, YM, TF, CL, 6E, ZB), you can find a list of the symbols here: E-Trade Futures Products.



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