Volumes Analysis Within Systematic Trading

by Francesco Placci

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We know that volume analysis is often used in discretionary trading, but can it be convenient to use it in systematic trading?

In this post, we explore this topic starting from the trading method we use at the Unger Academy, which is based on using platforms that work with time bars.

At first sight, the role of volume analysis in this approach is pretty marginal, but there are situations in which it can turn out to be very useful...Want to know when?

Then see the post and find out how to exploit volumes to build your trading systems!

Transcription

Hi guys, today we are going to talk about volumes and their use within systematic trading.

Before we start, however, I invite you to subscribe to our channel to stay up to date on new videos.

I am Francesco Placci, head of research and development at the Unger Academy.

Many of you have asked us and continue to ask us about the use of volumes in systematic trading.

Well, in this video, we are going to try to share some light at least in terms of what our approach is on the possible usefulness of using volumes within our trading strategies.

What is your approach to trading?

First of all, we have to ask ourselves what kind of systematic trading we are talking about because there are many approaches to systematic trading.

So, in our case, for example, we use platforms that are based on time bars like minutes, hours, days, and so on and with this kind of structure I can tell you that, in my experience and Andrea's experience too, volumes have marginal usefulness at the best.

Many years of backtesting have produced no evidence that a volume-based analysis is more effective than a price-based analysis.

This doesn't mean, however, that the analysis of volumes does not have some benefit, perhaps there are different models of trading, different infrastructures, that are able to make better use of it.

In our case, anyway, the primary use is as an operational filter.

An Example Where The Volumes Analysis Is Useful 

Let me give you an example.

If we want to trade a basket of stocks, we can use volumes to discard stocks that aren't enough liquid.

Talking about futures, we can use volumes to verify the liquidity of the underlying.

By doing that we can avoid the slippage because we know that certain futures during night hours, can be illiquid and there can be a lot of slippages.

Be Careful About This!

But there is also a problem.

When we trade futures we have to deal with rollovers.

When traders roll from one future to its next, there is a shift in volumes and this is a mechanical shift, it's not due for example to an interest in that underline.

Anyway, I have to admit that volume analysis has something fascinating.

I'm referring to volume profile or to some platform like Bookmap which is very interesting, but in our case, it's very difficult to use volumes effectively.

It's difficult to encode the logic based on volumes, and also we need extremely precise data and because of that, generally speaking, volume analysis is more used by discretionary traders than systematic traders.

I have to say that I personally know some discretionary traders who are very profitable, but you know, this is not the norm, you need to have some particular talent to be a successful discretionary trader.

In Conclusion

So to summarize, I have to say that volume analysis is not so useful, in my opinion, and in Andrea's opinion, in our kind of trading.

Anyway, before taking opinions as facts, I suggest you try to use volumes in your trading systems.

Without any doubt, it still remains an interesting field.

Anyway if you are interested in the volumes, before taking opinions as facts, I suggest you try to use volumes in your trading systems.

Without any doubt, volumes analysis is a very fascinating field.

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Francesco Placci

Hi, I'm Francesco Placci, a professional trader since 2005 thanks to the systematic approach to the markets.

My skills range from trading on index futures to bonds, from stocks to commodities, with a particular focus on volatility and options, which I consider to be among the most versatile and fascinating instruments available to traders.

After an experience with leading Italian credit institutions where I learned the basics of institutional finance, I became a successful independent trader, with great personal satisfaction.

Founder of Algoritmica.pro, in 2019 I joined Unger Academy as head of Research and Development.