PredictIt Market Fluctuations: Trade Volume vs Share Price
I’ve been looking at a lot of data recently around my trades on PredictIt.org
And, trying to make sense of patterns I’ve seen for a couple years.
One of those that has interested me for a while is:
Is there a correlation between trade volume and share price?
They’re not the same, but we can look at trading stocks as a benchmark for understanding volume vs share price.
So what are the basics?
Volume is a measure of how much of a given financial asset has been traded over time.
Therefore for every buyer, there needs to be someone who sold the shares they bought, just as there must be a buyer in order for a seller to get rid of her shares.
This battle between buyers and sellers for the best price on all different timeframes creates movement while longer term technical and fundamental factors play out.
The $68,000 question (maybe more) is, is there a direct correlation between share price and trade volume which can bolster returns and also reduce risk?
I took a closer look on a recent trade.
Couple things to note about variables in this prediction market. (1) There’s an Opening Price — Share price at the start of the day. (2) There’s a Closing price — Share price at the end of the day. (3) There’s a High Price — Highest Share price of the day. (4) There’s a Low Price — Lowest Share price of the day. (Start and End of Day times are unknown)
I recently bought and sold shares in the contract: Will Trump move the U.S. embassy in Israel to Jerusalem in 2017?
My general rule of thumb to determine the strength or weakness of a move has been, a rising market should see rising volume. It makes sense, right?
Buyers require increasing numbers and increasing enthusiasm in order to keep pushing prices higher. Increasing price and decreasing volume show lack of interest and this is a warning of a potential reversal.
Said more simply, a price drop (or rise) on little volume is not a strong signal. A price drop (or rise) on large volume is a stronger signal that something in the contract has fundamentally changed.
But, when diving into the details on any given contract, does this always hold true.
Across days, when the contract initiates, it has a high closing share price but a really low trade volume. A lot of factors could be contributing to this.
It’s not yet clear. So, I wondered if it’d change if we looked hour by hour. It seemed to make more sense.
I bought shares of the contract: What will Trump’s RCP average job approval be at end of day March 3?
The hour-by-hour data is interesting. At 6:00pm the Share Price jumps from $0.40 to $0.85. That’s an 113% increase in an hour. But, something interesting happens. Theres an 152% increase in shares traded, but not until 60 minutes later.
There seems to be an impact, but it’s delayed. Perhaps because real-time data on these trades is limited.
Let’s look at another example. I bought shares of the contract: How many tweets will @potus post from noon Mar. 7 to noon Mar. 14?
There seems to be a similar pattern when looking at the data on an hour-by-hour basis. From 8pm to 9pm, the share price jumps 52%. Again, the volume traded jumps. This time, it increases 64% but it happens a full hour after the share price increase. Presumably, if investors had real-time data around the share price and volume, they could have bought shares in the same hour as the increase.
There are many other cases which suggest similar outcomes. But, all these cases had some variety in share price prior to the 50%+ increase. What about those that were flat before the increase?
We can look at other contract I recently bought: Who will be Secretary of Labor on Mar. 31, 2017?
In this scenario, at 7pm there was both a greater than 50% jump in share price and shares traded. The share price was relatively flat for the 11 hours that preceded the jump, and the trade volume experienced negligible increases, in that same 11-hour period prior to the share price increase.
But, sometimes there are contracts that require inside information, or don’t have a lot of publicly available information — making it harder to determine an educated prediction. These contracts don’t seem to show a strong correlation around price and volume.
Let’s look at one I’ve recently bought: Who will be Secret Service director on Mar. 31, 2017?
Questions like these are more reliant on the market but also seem to have less indicators. In the scenario above, the price fluctuates a lot over a 12-hour period.
Without a lot of available knowledge around this hire, the market doesn’t seem to know if the high price is real, and doesn’t begin trading many shares until 9hours after its initial price surge.
So, what are we to make of this data?
There seems to be a correlation between price and trade volume. But, to better understand and analyze it and best practices around these metrics, more real-time data is necessary.
I’m curious to know what others in the market have seen. And, if you have data and insights that point to more clear or less clear correlations between Share price and Trade volume.
I’ll be capturing data and sharing insights over the next several weeks. If you’re in New York City and want to discuss, reach out. Let’s grab a coffee.