A study of the correlation between price and volume
In the trading world, yes, there is the same dilemma: ‘the price or the volume?’. As those two are main factors for the traditional markets and applying exactly same to digital assets trading and risk management perspectives (which even need more study and research), we chose to check its relationship, including the open interest.
Trend or directional analysis have suggested tick-patterns based analysis, seeking signals for buy and sell. It has implication, although hard to capture, reproduce and apply past results, to current market with a certain level of confidence on execution with a given signal, on which is fast-paced, even 24hr trading in the world of digital assets. In addition, empirical researches and articles in the regulated market show less or no relationship between price and volume. However, we tried, putting ourselves in a humble and skeptical position, with a belief that there might be untouched holy grail.
For your information, we examined differential, moving average, and any different way of measures for further research and transparent results. However, we stick to a simpler one which still shows an interesting phenomenon in the end. This will be easy to replicate for readers or OKEx users for their trading appetite, latency horizon, and customized factors.
1. It is proved again that price and volume have no necessary relationship in general.
However, BTC bi-weekly volume shows a weak negative correlation to all prices, which draws attention for further investigation.
2. Bi-weekly futures are the least traded derivative across all OKEx crypto derivatives, and less connected to other maturities, based on volume.
However, although it is less traded, it has a role in market turbulence.
3. As known, open interest (OI) can be an indicator of price.
- p.xxx refers to price of xxx, and v.xxx for volume.
- FUT.OI is aggregated open interest in all futures market with a given time interval
We could see the biweekly’s volume data has indication over OKEx perpetual swap, futures markets. This may stem from hedging purpose at a market crash, waiting for the trends end or reversal at nearby safe heaven, although hard to resist fundamental change.
Since the open interest being used in this report is aggregated data, we admit precision is less sharp. Thus, we admit its limit and would like to go deeper on this analysis by segregating buy/sell trading volume, and same for open interest on order book level in the near future.