Here is what is keeping me up at night. Ok. Maybe up during the day:
So many of our traditional, historical perspectives of the market, and charts, and % moves, and predictive tools, use volume somewhere in the analytical equation. I guess the simplest example is that we are used to seeing the market advance on increasing volume, and decline (correct healthily) on decreasing volume. Somewhere in these little rules of thumb that we have accumulated over time, is the intiuitively appealing notion that individuals and mutual funds buy stocks at $10, with the hope (or fear in case they are short) of a move to $15. Our way of analyzing market internals, and predicting future moves, is dependent on this simple assumption in many ways. We assume that buying takes place to make a profit, or limit a loss, based on the price of the stock.
But what if all the volume we are seeing no longer is volume with that motive, or backdrop? What if the players/traders/automated traders in the market are making money, not on price moves, but by just simply creating phantom volume. What if the money is being made by designing systems to garnish liquidity rebates as close to risklessly as possible? What if money is being made by creating instances of trades on the tape on specific venues in order to garnish “tape revenue”? If this is so, then is the volume we are all seeing, and the corresponding price action that goes with it, relevant?