Signed Volume refers to a directional measure of trading activity that quantifies the total volume of assets traded, differentiated by whether the trade originated from a buyer (aggressive buy order) or a seller (aggressive sell order). This metric provides a more granular insight into market pressure and order flow imbalances than raw volume, indicating the prevailing sentiment and potential short-term price direction.
Mechanism
The mechanism involves analyzing tick-level trade data, specifically the price at which a trade occurs relative to the current bid-ask spread. If a trade executes at or above the ask price, it is classified as a buy-initiated trade; if it executes at or below the bid price, it is a sell-initiated trade. The volume of these classified trades is then aggregated to derive the signed volume for a given period.
Methodology
The methodology for using signed volume includes applying it as a technical indicator in algorithmic trading models or for market microstructure analysis. Positive signed volume suggests buying pressure, potentially indicating upward price movement, while negative signed volume indicates selling pressure. Analyzing its divergence from price action or its aggregation over time helps identify accumulation or distribution patterns and informs short-term trading decisions.
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