With the equity markets trading at four-year highs, one would assume the volume would also be keeping up. However, that is not the case as depleting volumes are trading at five year lows. In Part I of Gaming HFTs, I pointed out that computer driven algorithm and high frequency trading programs account for upwards of 70% of the actual daily market volume. These programs strike in spurts at specific price levels to magnify price movement at the least cost. This has resulted in a market environment that sees massive volume in compressed periods of time before returning back to light volume. In essence, this market produces thunderous volume generating fast momentum, which then falls off a cliff to tumbleweeds. Thunder and tumbleweeds is the new market environment.
The major pitfall of this environment is stepping into that riptide of volume by chasing price and then getting trapped in a position, when the volume and liquidity dry up. Chasing thunder and getting trapped in the tumbleweeds is the common pitfall in this market.
The trick to is to exit into the thunder before the tumbleweeds set in and then stay out of the tumbleweeds. While thunder can strike on any given stock at any given moment during the trading day, the market in general tends to have one single constant specific period of thunderous volume daily, that is the market open.
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