Relationship between volume and volatility - you won't believe what I found

johny08

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Quote from: BombaUcigasa on August 15, 2014, 05:12:45 AM

Quote from: Kluge on August 15, 2014, 01:03:42 AM

I'd guess margin cascade is the simplest explanation, compounded by psychological impact of the cascade which encourages non-automated trades.

As an aside, it looks like:
Volume > volatility when BTC falls.
Volume < volatility when BTC rises.

Yes, it appears the exchange arbitrage is causing more than half the trades to be from external sources and once the price moves, new hedges are put in the other wall. As for your observation, looking at the spikes only it seems to be true in 50% of the cases. The market is composed of market-makers and the actual real trades are small in volume and covered by volume with later repositioning trades. It's almost perfectly liquid.

There are two perceptions that I noticed them in real time:
- During the china peak, the market was empty, nobody had any bitcoins for sale (because the offer was exhausted) and nobody wanted to buy (crazy price, already bought all). So the price changed rapidly on little volume.
- During the mtgox crash, the market resisted strongly against mtgox's arbitrage opportunity, which was of course unsolvable. Those were some of the days where the price stayed in the same region while huge volumes were traded up and down.

there is always a correlation between volatility, volume and price. mac , rsi, emas working good.

BombaUcigasa

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Quote from: Kluge on August 15, 2014, 01:03:42 AM

I'd guess margin cascade is the simplest explanation, compounded by psychological impact of the cascade which encourages non-automated trades.

As an aside, it looks like:
Volume > volatility when BTC falls.
Volume < volatility when BTC rises.

Yes, it appears the exchange arbitrage is causing more than half the trades to be from external sources and once the price moves, new hedges are put in the other wall. As for your observation, looking at the spikes only it seems to be true in 50% of the cases. The market is composed of market-makers and the actual real trades are small in volume and covered by volume with later repositioning trades. It's almost perfectly liquid.

There are two perceptions that I noticed them in real time:
- During the china peak, the market was empty, nobody had any bitcoins for sale (because the offer was exhausted) and nobody wanted to buy (crazy price, already bought all). So the price changed rapidly on little volume.
- During the mtgox crash, the market resisted strongly against mtgox's arbitrage opportunity, which was of course unsolvable. Those were some of the days where the price stayed in the same region while huge volumes were traded up and down.

zedicus

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Quote from: BombaUcigasa on August 14, 2014, 04:26:56 PM

Quote from: derpinheimer on August 14, 2014, 04:25:14 PM

I dont understand what this is..

I mean, you'd expect volatility and volume to be pretty well correlated.

Ok, sure, I suppose that is expected. But why if the price is 10% different today, the volume has to be 10% bigger? Can't the market move with less volume? What if everyone decides that the price is 600$ tomorrow, and nobody resists the new price level and it just surfs? I think there are too many bots out there.

Generally speaking when volatility is larger, more people will want to either enter into or out of a position due to their own internal "stops" and speculators will want to attempt to profit when prices are moving large amounts as there are more potential opportunities for profit.

Kluge

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I'd guess margin cascade is the simplest explanation, compounded by psychological impact of the cascade which encourages non-automated trades.

As an aside, it looks like:
Volume > volatility when BTC falls.
Volume < volatility when BTC rises.

Am I remembering the rise and fall time periods right?

johny08

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Quote from: maker88 on August 14, 2014, 06:21:35 PM

Quote from: BombaUcigasa on August 14, 2014, 04:26:56 PM

Quote from: derpinheimer on August 14, 2014, 04:25:14 PM

I dont understand what this is..

I mean, you'd expect volatility and volume to be pretty well correlated.

Ok, sure, I suppose that is expected. But why if the price is 10% different today, the volume has to be 10% bigger? Can't the market move with less volume? What if everyone decides that the price is 600$ tomorrow, and nobody resists the new price level and it just surfs? I think there are too many bots out there.

it can move with less volume, sure. but volume is just the amount of people buying or selling, so obviously when that increases, volatility increases as more people are either buying or selling. pretty basic i think.

what i know, its the same at the wall street. the principle. the reporters always saying in the tv: today we have seen less volume. they saying with that, today nobody cared, there were no movement in price etc.

But what is you direct different conclusion. you can just pm me, if you dont to public it.

maker88

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Quote from: BombaUcigasa on August 14, 2014, 04:26:56 PM

Quote from: derpinheimer on August 14, 2014, 04:25:14 PM

I dont understand what this is..

I mean, you'd expect volatility and volume to be pretty well correlated.

Ok, sure, I suppose that is expected. But why if the price is 10% different today, the volume has to be 10% bigger? Can't the market move with less volume? What if everyone decides that the price is 600$ tomorrow, and nobody resists the new price level and it just surfs? I think there are too many bots out there.

it can move with less volume, sure. but volume is just the amount of people buying or selling, so obviously when that increases, volatility increases as more people are either buying or selling. pretty basic i think.

BombaUcigasa

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Quote from: Schickeria on August 14, 2014, 04:28:22 PM

Why you wonder? A lot of volume moves the market, effecting strong movements and contrarian movements. The first volume-kick is the of start volatility.

For example:

Day 1: someone comes in, sells bitcoin for the price to go from 600$ to 500$, delta 20%, volume 20% of average.

Day 7: someone comes in, sells bitcoin for the price to go from 600$ to 500$, someone else comes in and buys bitcoin up to 600$, someone else comes in and sells again down to 500$, delta 20%, volume > 20%?

Schickeria

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Why you wonder? A lot of volume moves the market, effecting strong movements and contrarian movements. The first volume-kick is the of start volatility.

BombaUcigasa

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Quote from: derpinheimer on August 14, 2014, 04:25:14 PM

I dont understand what this is..

I mean, you'd expect volatility and volume to be pretty well correlated.

Ok, sure, I suppose that is expected. But why if the price is 10% different today, the volume has to be 10% bigger? Can't the market move with less volume? What if everyone decides that the price is 600$ tomorrow, and nobody resists the new price level and it just surfs? I think there are too many bots out there.

derpinheimer

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I dont understand what this is..

I mean, you'd expect volatility and volume to be pretty well correlated.

BombaUcigasa

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The exact numbers are not important, but the absolute volume and absolute volatility (price difference) are too well correlated. Why is this happening? Are the order walls evenly distributed this well on Bitstamp? It's logical that the price will move with volume, and the volume will increase if there's a price potential, but are they really so closely connected?

For example:

Day 1: someone comes in, sells bitcoin for the price to go from 600$ to 500$, delta 20%, volume 20% of average.

Day 7: someone comes in, sells bitcoin for the price to go from 600$ to 500$, someone else comes in and buys bitcoin up to 600$, someone else comes in and sells again down to 500$, delta 20%, volume > 20%?

Topic: Relationship between volume and volatility - you won't believe what I found (Read 1496 times)