Volume bars: when the clock is the wrong measure

[Fairman]

Volume bars: when the clock is the wrong measure

Instead of cutting bars by time, a volume bar closes after a fixed amount of trading. In forex, where true volume is hidden, tick counts stand in.

The appeal is statistical. Time bars contain a variable amount of activity, with some holding a flurry of ticks and others almost none. Volume bars contain a roughly constant amount, so each bar carries similar information, and the returns tend to behave better for analysis.

For scalping, they smooth out the dead periods and zoom in on the active ones. A signal based on volume bars responds to market activity rather than the clock.

The weak points are the usual ones. Tick counts depend on the broker's feed. Platforms need custom tools to build them. And live behaviour can differ from historical construction if the feed changes.

Anyone curious can test a basic idea on both bar types and compare the stability of the results.

A neat property is that volume bars normalise the data. During a busy minute, many bars form. During a quiet one, few. A fixed-size move in the bar series then represents a roughly constant amount of activity.

Have volume or tick bars given a cleaner view than time bars?