|  OCT 1988

Volume as a proxy for time by Robert Pisani

Volume as a proxy for time There are numerous ways to display the market information contained in Market Structure charts. The standard format consists of three parts (Figure 1): the Market Structure Histogram on the left side of the chart, volume at each price displayed in time sequence in the chart's center, and the total volume for each time period on the bottom of the chart. The market progresses simultaneously through two dimensions: time and volume. Thus, one can measure the market's progress either by counting time or by counting transaction volume. Although the latter measurement is quite unusual, the logical justification for it is simple: ultimately, the structure of the market consists of the holdings and intentions of its participants. A transaction of 1,000 contracts or shares effects a change in the structure of market holdings. The size of this change is precisely 1,000 contracts. The economy progresses through change, and a transaction of 2,000 contracts effects a structural change that is physically twice as large as a transaction of 1,000 contracts. In relating time to volume, keep in mind that the units we use are arbitrary and irregular. The human demarcations of time are the day, the week, the month, the quarter, the year and, perhaps, others. Certain time periods (or ""atoms"" which are the smallest unit by which we choose to measure time) are more ""natural"" than others and market information related specifically to these time units has special significance. Similarly, there are demarcations of volume. One cannot directly purchase 0.3 contracts or wheat, odd lot trading of stock is not common anymore, and there are position limits imposed on certain traded items.

by Robert Pisani