Turnover

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Turnover is an aggregated cost of all trading deals in a specified time period. In technical analysis the turnover measures efficiency and intensity of assets allocation. High and growing turnover is a signature characteristic of “bullish” market with uprising price trend. On some extent it’s part of bulls strategy: in order to increase the price new cash flows must be attracted while drop in prices may happen under their own “weight”. Experienced bear investors know about that inertness of the market and may catch the right moment to buy.

Turnover is the second important indicator after a price in the Foreign Exchange technical analysis. For graphical interpretation of this feature special diagram – trading volume histogram – is constructed. It consists of columns of different height, each representing its own time frame (depending on the diagram scale it may be 1 minute, 5 minutes, 15 minutes etc). Elevation of the column corresponds with trade volume level – higher column stays for bigger trade turnover. Usually histogram is plotted together with the price graph so each histogram column complies with relative graph point (or bar or candle). Thus trading volumes for each price level become clearly visible.

Trading volume histogram does not give any information if bulls or bears prevail on the market, i.e. it’s not possible to define whether there was more selling or buying in reviewed time period. But this is not that important for turnover analysis cause this information could be easily received from price dynamics. It’s worth mentioning that trade volumes outrun price movement. If price goes up along with rising turnover and afterwards turnover drops then normally the price will run up for some time and only after losing its momentum the trend will turn downwards. Therefore turnover fluctuation may serve good signal of upcoming trend’s re-orientation and should not be ignored. The price diagram should always be accompanied with trading volume histogram.

It is very important for financial market turnover analysis to look not only at total trading volumes but also at open interest – sum of all open positions at the end of trading period. And only variations of this index are really matters, not absolute value. Increase in trading interest may be a good sign of trader’s preferences. If positions are kept open it means that traders support existing trend in long term perspective. On the other side excessive boost of open interest signals trend’s possible turn as traders may will to close their positions to fix the profit.

Exact figures of Foreign Exchange trading turnover are inaccessible even for official statistic authorities so tick volume or number of quotations within specified time frame is widely used for Forex turnover estimations. Its highest, almost absolute liquidity smooth out differences and makes tick volume dynamics to replicate general turnover dynamics.

    Following rules should be considered for trading turnover indicators treatment:

  • Decrease of turnover is a signal of slump in current trend support: it will either change direction or prices will stay flat for some time;
  • Increase of turnovers means strong support of current trend: prices will float in the same direction or new trend will appear;
  • Sometimes slight turnover changes come along with rough price changes;
    turnover peaks indicate potential trend turns.

All abovementioned indicators and trading strategies are useful only for profiting from short-term fluctuations – within one hour – and they only cover trade volume and price dynamics within one trading session (Japanese, European or American). On longer time scale (one day and longer) total trade turnover balance around more or less constant level and depends more on time of a day (in Japanese session trade volumes are at minimum and they reach their maximum at border of European and American sessions).