2008issue C121-4
Constructing equal-volume and open-interest auction zones
Clock bars can hide how much a futures session actually traded. Rebuilding the day as equal-volume or open-interest bars makes each print a fixed slice of activity, so later support and resistance can be read as inventory zones rather than as equal minutes.
- A single clock bar may contain only a few contracts or as many as 1,000, so volume has to be inspected separately before that bar is treated as meaningful.
- Equal-volume bars fix each print as a slice of session activity and can show how much of a day printed inside the open-outcry window.
- Open-interest bars size each print as a fraction of outstanding contracts, so a decline or retrace can be read as how much of the existing book turned over.
- Where supply and demand come into balance, the zone edges are treated as candidate references for a further leg, a stop, or a reverse once inventory has flipped.
Clock bars hide participation
Time-segmented bars can hide participation. A single clock bar may contain only a few contracts or as many as 1,000, so volume has to be inspected separately to judge whether that bar is meaningful.
Tick charts count transactions and do not display volume. Low-volume time bars can still print and trip resting stops.
Equal-volume bars as session slices
Equal-volume construction can make each bar a fixed slice of session activity. One illustrated crude-oil day used equal-volume bars of about 1/100 of electronic daily volume.
In that same illustrated session, about 70% of electronic volume printed during the open-outcry window and about 30% printed outside it. A 15-minute time chart of the identical day was shown as a comparison across the hours before, during, and after that window.
One illustrated Treasury-bond session divided the day into 100 equal-volume bars. About 1% of volume printed as a doji at the high, the next 2% as two narrow-range bars, and the remaining 97% of bars continued lower. Each of those later bars represented about 6,000 electronic contracts.
Open-interest bars and turnover
Open interest is the number of outstanding contracts for a given expiry and is typically larger in the active front month. Each long is paired with a short. An exit requires an offsetting trade before expiry, or the position can go to delivery.
One illustrated bond series used open-interest bars of 1/20 of open interest when open interest was 982,000, or about 49,000 contracts per bar. Twelve downward bars accounted for about 600,000 contracts, or about 60% of open interest, over a two-point decline spanning about two sessions.
After an eight-bar two-sided pause, a two-point retrace on eight upward bars plus two short consolidations represented about 50% of open interest and returned price to a prior supply location.
Zone edges after inventory flips
Charting open-interest turnover is used to mark where supply and demand come into balance. Those zone edges are treated as candidate references for a further leg, a stop, or a reverse once inventory has flipped.
Editorial reading: support and resistance become checkable inventory zones only after the chart stops treating every minute as equal work. A supply zone is then a location where selling inventory previously balanced or overwhelmed demand after an advance. A demand zone is a location where buying inventory previously balanced or overwhelmed supply after a decline.
All readings on this track · 8 readings
- 2005Decaying volume bands as leftover auction inventory
- 2008Constructing equal-volume and open-interest auction zones
- 2010Constructing daily volume-profile breakout levels
- 2010Building volume profile maps for support and resistance
- 2015SPY volume profile as a support and breakout map
- 2016A three-layer sector map around a policy-meeting week
- 2017A three-part liquidity screen before a futures idea is executable
- 2020A two-gate liquidity filter before futures order selection