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4 Simple Volume Trading Strategies

Why is Volume Important?

Volume

Volume analysis is the technique of assessing the health of a trend, based on volume activity. Volume is one
of the oldest day trading indicators in the market. I would dare to say the volume indicator is the most
popular indicator used by market technicians as well. Trading platforms may not have a particular indicator;
however, I have yet to find a platform that does not have volume.

In addition to technicians, market fundamentalist also take notice to the number of shares traded for a given
security.

Bottom line, the volume indicator is one of the simplest methods for observing the buying and selling
activity of a stock at key levels. The tricky part is volume can provide conflicting messages for the same
setup. Your ability to assess what the volume is telling you in conjunction with price action can be a
deciding factor for your ability to turn a profit in the market.

In this article, we will cover how to assess the volume indicator to help us determine the market's intentions
across four common setups:

1. Breakouts

2. Trending Stocks

3. Volume Spikes

4. False Breakouts

Strategy 1 - Breakouts and Volume


Breakouts and Volume

Traders will often look for breaks of support and resistance to enter positions. For those fans of the
Tradingsim blog, you know that I exclusively trade breakouts in the morning of each session. There are two
key components to confirm a breakout: (1) price and (2) volume. When stocks break critical levels without
volume, you should consider the breakout suspect and prime for a reversal off the highs/lows.

The below chart is of Netflix on a 5-minute time interval. You will notice that Netflix was up ~15%
throughout the day after a significant gap up. Can you tell me what happened to Netflix after the breakout
of the early 2015 swing high?

Breakout of Swing High

The interesting thing about the Netflix chart is that the stock never made a new high after the first 5-minute
bar.
NFLX - Flat for the day

This is a prime example where a stock may have broken a high from a few weeks ago, but is unable to break
the high for the current day. As day traders, you want to wait until the high of the day is broken with
volume.

A key point for you is that every swing high does not need to exceed the previous swing high with more
volume. I used to obsess over this and if I didn't see more volume I would walk away from the trade.
Looking at the chart of Netflix above, do you honestly think the stock will exceed the first 5-minute bar
with increased volume? Of course not!

While this charting example did not include a break of the daily high, when you look for stocks that are
breaking highs, just look for heavy volume. Please don't beat yourself up because the 9:35 bar had 150,000
shares traded and the break of the high at 10:10 am only had 132,000.

Now if you see a break of a high with 50% or 70% less volume, this is another story. Again, if we are
within the margins, please do not beat yourself up over a few thousand shares.

In a perfect world, the volume would expand on the breakout and allow you to eat most of the gains on the
impulsive move higher. Below is an example of this scenario.
Valid Breakout

Let's test to see if you are picking up the concepts of breakouts with volume. Take a look at the below chart
without scrolling too far and tell me if the stock will continue in the direction of the trend or reverse?

Breakdown or not?

Come on, don't cheat!


Breakdown

The answer to my question - you have no idea if the stock will have a valid breakout. From the chart, you
could see that the stock had nice down volume and only one green candle before the breakdown took place.
This is where experience and money management come into play, because you have to take a chance on the
trade.

You would have known you were in a winner once you saw the volume pickup on the breakdown as
illustrated in the chart and the price action began to break down with ease.

For those that follow the blog, you know that I like to enter the position on a new daily high with increased
volume. You will need to place your stops slightly below the high to ensure you are not caught in a trap.
This strategy works for both long and short positions. The key again, is looking for the expansion in
volume prior to entering the trade.

In Summary

1. The stock has volatile price action with the majority of the candle color mirroring the direction of the
primary trend (i.e. red candles for a breakdown and green candles for a breakout).

2. On the breakout volume should pickup

3. The price action after the breakout should move swiftly in your favor

Strategy 2 - Trending Stocks and Volume


Trending Stocks

When a stock is moving higher in a stair-step approach, you will want to see volume increase on each
successive high and decrease on each pullback. The underlying message is that there is more positive
volume as the stock is moving higher, thus confirming the health of the trend.

This sort of confirmation in the volume activity is usually a result of a stock in an impulsive phase of a
trend.

Volume Increase

The volume increase in the direction of the primary trend is something you will generally see as stocks
progress throughout the day. You will see the strong move into the 10 am time frame, a consolidation period
and then acceleration from noon until the close.

For this strategy, you will want to wait for the trade to develop in the morning and look to take a position
after 11 am. For those that follow the blog, you know that I do not trade in the afternoon; however, this
doesn't mean you can't figure it out.
As the stock moves in your favor, you should continuously monitor the volume activity to see if the move is
in jeopardy of reversing. The speed of this setup is much slower versus the other strategies discussed in this
article; however, the difficulty reveals itself in the increased number of false moves, which are
commonplace in the afternoon.

Think I'm kidding about false breakouts, let me show you a couple.

Weak Trend 1

Weak Trend 2

These charts are just a sample of what happens far too often when it comes to afternoon trading. So, how do
you find the stocks that will trend all day? After many years of trading, I can tell you I honestly don't know.
In Summary

1. Look for volume to push the stock in the direction of the primary trend

2. You need to be prepared to hold a stock for multiple hours in order to reap the real rewards

3. Once you figure out how to identify the stocks that will trend all day prior to 10 am, please shoot me
an email

4. Instead of using volume to predict which stocks will trend, simply use volume as an indicator that
keeps you in a winning position

Strategy 3 - Volume Spikes

Volume Spike

Volume spikes are often the result of news driven events. It occurs when there is an increase of 500% or
more in volume over the recent volume average. This volume spike will often lead to sharp reversals, since
the moves are unsustainable due to the imbalance of supply and demand. Trading counter to volume spikes
can be very profitable, but it requires enormous skill and mastery of volume analysis.

These volume spikes can also be an opportunity for you as a trader to take a counter move position. You
really need to know what you are doing if you are going to trade volume spikes. The action is swift and you
have to keep your stops tight, but if you time it right, you can capture some nice gains.

Let's walk through a few volume spike examples, which resulted in a reversal off the spike high or low.

In the below example we will cover the stock Zulily. The stock had a significant gap up from $13.20 to
almost $16.
Volume Spike Reversal

Notice how the stock never made a new high even though the volume and price action was present. This is a
key sign that the bears are in control. For this setup, you will want to focus on the following key items:

In Summary

1. The high or low of the first candle is not breached

2. The first candle has significant volume

3. The subsequent heavy volume events further establish the reversal in trend from the initial spike at
the open

4. Place your stops directly above the high or low of the first candle

Volume Spikes with Long Wicks

The other setup with volume spikes are candlesticks with extremely long wicks. In this scenario, stocks will
often times retest the low or high of the spike. As a trader, you can take a position in the direction of the
primary trend, after the stock has had a nice retreat from the initial volume and price spike.

Below is an example from a 5-minute chart of the stock Depomed, ticker DEPO. You will notice how the
stock had a significant gap down and then recovered nicely. Once the recovery began to flat line and the
volume dried up, you will want to establish a short position.
Long Wick

Let's take another look at a long wick setup. The below chart is of Frontier Communications, ticker FTR
with a long wick down. The stock then recovered and went flat, which was an excellent time to enter a short
position.

Another Long Wick

In Summary

1. Identify a high volume gap with a long candlestick on the first bar

2. Wait for the stock to eat into the morning gap and volume to drop off
3. Take a position in the direction of the primary trend with a price target of the low or high of the wick

Strategy 4 - Trading the Failed Breakout

Trading the Failed Breakout

I would be remiss if I didn't touch on the topic of failed breakouts. As a day trader that specializes in early
morning breakouts, I have my fair share of trades that just don't work out. So, how do you know when a
trade is failing? Simple answer - you can see the warning signs in the volume.

Let's dig into the charts a bit.

False Breakout 1

Above is the chart of Amazon and you can see the stock attempted to breakout in the first hour of trading.
Notice how the volume on the breakout attempt was less than stellar. As a trader, you shouldn't be surprised
when the stock begins to float sideways with no real purpose. While this would have been a bad trade,
because your money is idle, it's still much better than what I'm getting ready to show you next.
False Breakout 2

The above example of ESPR would drive me crazy 6 years ago. Notice how the volume dries up as the
stock attempts to make a lower low on the day. The key for you as a trader to get out is the price action
begins to chop sideways for a number of candles. When you sit in a stock hoping things will go your way,
you could just make a donation to charity. At least the money will go to a worthy cause.

In Summary

1. Breakouts fail quite often

2. If the volume dries up on the breakout, look to get out within a few candles if things don't turnaround

3. If you want to play the reversal, wait a few candles to see if the peak holds and enter a trade counter
to the morning gap

4. You can use the peak of the first candlestick as a logical point to exit the trade

In Conclusion
The strategies discussed in this article can be used with any stock and on any time frame. The most
important point to remember is you want to see volume expand in the direction of your trade. Keep this in
the back of your mind and you will do just fine.

A Simple Way To Read Intraday Volume


By Alan Farley | May 20, 2015 2:00 PM EDT

Share
Intraday equity volume can be tough to read because market participation is skewed toward the beginning
and end of the trading day, with volume shrinking through the lunch hour and picking up late afternoon.
What looks like a high volume event at the start of the session can fizzle out, trapping short-term traders
who use this technical data to trigger buy and sell signals. (See: What The Market Open Tells You).

Its estimated the 70 to 75% of all volume is booked in the first and last hours. The first hour shows heavy
participation because it captures overnight sentiment and news flow as well as plays set into motion by
individuals and institutions using end of day analysis. The last hour attracts broad interest because it wraps
up intraday themes while drawing in speculative capital looking to benefit from that days trade flow.

A number of analytical techniques let traders measure intraday participation levels and estimate closing
volume, often with surprising accuracy. These methods produce practical data as soon as the end of the first
hour, leaving plenty of time to build strategies that capitalize on high emotional levels in play when a
security is set to print two, three or four times average daily volume. (To learn more, read: Advantages Of
Data-Based Intraday Charts).

Volume Run Rate Vs. Average Daily Volume

One of the most effective techniques compares real-time intraday volume to a pre-selected moving average
of volume. Average daily volume often comes preloaded in charting packages, attuned to either a 50 or 60
day simple moving average (SMA). Its an easy calculation when custom input is required, taking the chosen
time period and dividing by the sum of volume booked during that period.

For example: Volume (day 1 + day 2 + + day 50)/50= 50-Day Average Volume

Technicians can apply a more precise exponential moving average (EMA) instead of a simple moving
average but it isnt required because the output is used to build a broad estimate of participation rather than
an exact numerical level. Its also more art than science because average volume shifts naturally over the
course of a trading year, with higher participation levels in the first and fourth quarters. (For related reading,
see: Simple Vs. Exponential Moving Averages).

There are two ways to compare average daily volume to intraday volume, one visual and the other
analytical. First, place average volume next to real-time volume on a quote sheet, using the proximity to
compare dozens of securities at the same time. Second, build a running total of average daily volume and
superimpose it over volume histograms at the bottom of the chart. This second method can also be used for
end of day analysis, as well as measuring the impact of a rising or falling average over time. (For more, see:
Day Trading Strategies For Beginners).

When using the quote sheet method, wait until the end of the first hour and then look for securities that have
already traded more than one third of the average daily volume. This cutoff figure utilizes the 70 to 75%
skewing, assuming that roughly one third of that sessions volume will be booked in the first hour, another
third into the last hour and the final third into the closing bell.

Re-check numbers at the end of the second hour to see if the run rate tracks your initial observations. This is
important because overnight themes may not be fully discounted, extending high participation levels. This is
especially true when US equity markets trade in lockstep with European bourses that close at the New York
lunch hour. When the run rate continues to exceed average daily volume into midday, assume it will do so
for the rest of the session, supporting volume based trading signals.

Bottom Line

Measure the flow of intraday volume to estimate the emotional intensity of the crowd, looking for greater
than average participation to yield profitable trading opportunities.

Volume measures how much of a given asset trades in a given period. The basic guidelines to analyzing
volume may not apply in all situations, but overall, they can help direct entry and exit decisions.

For example, a rising market should see rising volume because buyers need increasing numbers and
enthusiasm to keep pushing prices higher. When prices fluctuate on little volume, its not a strong signal. But
when a rise or drop occurs on large volume, it shows something in the stock has fundamentally changed.

Exhaustion moves occur in a rising or falling market. These are sharp changes in price combined with sharp
changes in volume, and they signal the potential end of a trend. They happen when the market reaches its
top, and traders who are afraid to miss out start to pile in. This exhausts the number of buyers.

Volume can also reveal bullish signs. For example, say volume increases as a stocks price declines, then
moves higher, and then lower again. If the price on the second low stays higher than the previous low, and
volume is diminished on the second decline, this is usually a bullish sign.

After a long price move higher or lower, if the price range shows little movement, but theres heavy volume,
it often means a reversal is coming. A rise in volume on a breakout from a chart pattern indicates strength in
the move. If theres low volume, it means the breakout is probably false.

Volume history should be considered using only recent figures. Comparing todays volume to what
happened 50 years ago yields irrelevant data.

4 Strategies for How to Use the Volume Oscillator


Fans of the Tradingsim blog know that I am big on volume. Volume is probably one of the oldest off chart
technical indicators you will find in technical analysis. So, as I'm looking through the technical indicators I
have been intrigued by the possible uses of the volume oscillator indicator.

The volume oscillator displays the relative strength of a shorter volume moving average to a longer one. To
keep things super simple, whenever there is a positive reading for the volume oscillator, there is strength on
the short-term in the direction of the primary trend. If the volume oscillator is in the negative territory,
volume is lacking and a change in trend is likely.

In this article, I will cover 4 strategies for how to trade with the volume oscillator. If you are looking for
how to calculate the volume oscillator and more of a technical definition of the indicator, please visit the
TA-Guru.

From a guy that believes that volume is the key to identifying the strength of a trend and where the smart
money is placing their bets, the volume oscillator provides an interesting perspective for how to view market
activity.

We all have seen the volume bars at the bottom of the chart which shows trading activity like the chart
below:

Volume Example

As a trader, you will look for when volume is drying up and when volume is accelerating. The red and
green volume bars provide us an indication of how the price closed. Nevertheless, what is the volume
actually telling you about the future direction of the trend?

Depending on the trade setup and volume at previous peaks or troughs, the market could be sending you a
number of signals.

Interpreting these signals is where the volume oscillator can provide clarity on where the stock could be
headed.

In the following examples, I will be using 5 periods for the short-term and 10 periods for the long-term, as
these are the defaults in the Tradingsim platform.

#1 - Breakout Confirmation
Breakouts have a high failure rate in the market, because these are levels, which are very visible to all
traders. There isn't some mystical Fibonacci level or complicated trendline; it comes down to a break of a
recent high or low. Let's take a look at a few breakout examples and the corresponding readings of the
volume oscillator.
Apple Breakout

The first example is of a breakdown of Apple on a 5-minute chart. Notice how as Apple approaches the
previous swing low, the volume oscillator spikes higher.

Volume Oscillator Spike

The previous swing low had a volume oscillator spike in the neighborhood of 23.42, while this break had a
reading of 31.74. So, does this guarantee the price will continue lower? Absolutely, not!

The way you should interpret this is that the amount of selling pressure increased on the retest of the swing
low. At this point, one of two things can happen: (1) Apple would reverse sharply as a selling spike could
lead to a trend reversal or (2) Apple will continue lower as the bears are in control.

Let's fast forward in time to see how the action played out for Apple.
Apple Much Lower

Now that we have shown the happy path, let's dig into an example where the volume oscillator failed.

Volume Oscillator False Signal

On this breakout, Apple had a nice spike in the volume oscillator on the positive side, which should have
resulted in a continuation of the breakout. However, as you look at the chart, you will notice that Apple
actually reversed at this critical level and generated a bull trap.

How could you have known that the signal was false?

On the surface, there really wasn't anyway for you to have known that Apple was destined to reverse and
head lower by simply looking at the volume oscillator in a vacuum.
Just as with any other indicator, you need to see both price and volume confirm the move. Once the price
action began to creep back below the breakout level, that was your cue to exit the position.

If you get nothing else out of this section of the article, remember that you cannot trade breakouts with the
volume oscillator blindly. You must have some predefined method for confirming the trend.

#2 - Riding the Trend


Volume in a strong uptrend or downtrend can be quite deceiving. The volume will appear to just float with
little fan fair as the stock continues in the direction of the primary trend. This can prove challenging to
interpret, because it's as if the market is floating with little purpose when in actuality the lack of push from
participants should trigger a reversal.

Let's look a look at the perfect example where the volume oscillator would have kept you in a position.

volume oscillator and strong trend

First, let me say that I personally hate these types of charts, because it leads people to believe you can find
these setups on a daily basis. Let me be clear, they are super rare. You are better served making consistent
profits instead of looking for these 90-degree charts.

Now that I have placed the disclaimer, PBMD had a massive intraday move.

After clearing resistance at the $3 dollar level, the stock began to rally significantly all the way up to $6
dollars. Looking back at the chart, there was no reason present to sell, but let me tell you that sitting with
that much of a paper profit on a day trade is one of the toughest things you can face in life.

Upon further review, you can see that the volume oscillator did a nice job of containing the trend as the
oscillator never dipped below the zero line. This tells you as a trader that the short-term strength in volume
was behind the move and the stock was headed to higher ground.

The likelihood of you finding a stock that hovers above its 0 line on the volume oscillator will be hard to
find, but when all starts align, it's a beautiful thing.
#3 - Volume Oscillator and Choppy Markets
You figure this one out and I will give you a gold medal. The volume oscillator in my humble opinion
provides a ton of false signals when the market is trading in tight ranges. The price and volume action will
look non-existent, yet the oscillator could be moving above and below the 0 line. As a trader, this would
really annoy me as the appearance of underlying strength or weakness is nothing more than a false signal.

Let's look at a few chart examples for clarity.

Volume Oscillator and Choppy Markets

Is it me or do the spikes in the oscillator make it appear as though there is more going on in this chart? The
bottom-line is that we have no idea which way the stock will break and only time will tell whether the bears
or bulls are correct.

What you can see using the volume indicator is that there is an increase in the volume when the stock finally
broke support. Which is a perfect segue into the next section of this article.

#4 - Drawing Trendlines on the Volume Oscillator


Another method used to trade with the Volume Oscillator is to actually draw trendlines on the indicator. The
goal here is to identify breakout patterns on the indicator to signal the stock price will also likely start
trending. I'm not a big fan of this approach as it starts to clutter your chart and I feel like the breakout is just
a coincidence as you are working with a large number of data points. At times the volume oscillator will
breakout prior to the trend and other times it won't.
It's just the law of averages.

Below is an example of where the volume oscillator was able to break through a trendline, as price was also
making a breakout on the chart.

volume oscillator trendline breakout

In the above example, Hawaiian Holdings (HN) had a breakout of the volume oscillator and then a back test
of the trendline prior to breaking out. I haven't run a detailed analysis on how often this occurs, but again
my gut tells me that it boils down to at some point, lines on a chart start to tell the same story. It just so
happens these stories are just by chance.

Volume Oscillator versus Volume


Here is the real test. Does the volume oscillator add any additional value that isn't already present in the
volume indicator?

The reason I am asking this question is because traders as a whole need to simplify their methodology.
Trading is the same way. As you begin to hone your craft, you may find yourself in a trap where you are
adding more and more indicators on the chart. Call it a security blanket, insecurity or just over thinking it,
your chart can begin to fill up.

So, always challenge your desire for one more indicator.

volume oscillator versus volume

In this example, we are looking at ACHC on a 5-minute timeframe. Notice how the stock shot up on high
volume. After the initial breakout, ACHC consolidated for a few candles and then screamed higher again.
As you can see in the volume activity, this was a huge surge as the volume was many multiples higher than
the average.

Now take a look at the volume oscillator. The oscillator definitely made a strong move higher, but the
oscillator failed to drastically exceed any of the recent peaks for ACHC.

Therefore, the answer to this question is because the short-term and long-term periods are 5 and 10
respectively.

If we expand the delta between the slow and fast periods, the volume spike is a bit clearer, but not by much.
While the peaks are a bit clearer, the volume oscillator doesn't come close to standing out as well as the
volume indicator. Why do you think this is the case?

Simply put, as the slow and fast volume averages surge higher, they do so relative to each other. Therefore,
you will never get the contrast you would find looking at each volume bar side-by-side.

Final Verdict
The volume oscillator like any other indicator can prove useful when combined with price action and trend
lines. I do however, feel like in the long run, it's better to have a solid understanding of the volume indicator
to ensure you can see the bigger picture and not get too lost in the spikes of the volume oscillator.

If you still want more regarding the volume oscillator, please check out this informative video posted by Jeff
Bierman on YouTube.

I hope you found this article helpful and if you want to test drive the volume oscillator for yourself, feel free
to visit our homepage to gain a better understanding of the Tradingsim Platform.

Much Success,

Al

Trade Volume Index (TVI) Technical Indicator

Trade Volume Index Definition

The trade volume index (TVI) detects whether a security is being bought or sold based on tick data. The
TVI provides a trader more insight into the amount of buying and selling for a security. It tracks the total
volume that occurs at the bid and ask. So, if the trade volume index is rising, meaning more people are
buying at the ask and the price of the stock is rising, one can assume the uptrend has legs. Conversely, if the
trade volume index is falling and the stock is dropping like a rock, then a stronger downtrend is in play.

Who is using the Trade Volume Index

The trade volume index is used primarily by day trading professionals. This is because active traders are
most concerned with how stocks perform at key levels and have to make swift decisions. Long-term
investors are less concerned with intraday data and focus their attention on how a stock closes at the end of
the day.

How to use the Trade Volume Index

The TVI shows its predictive power when assessing a stock that is flat lining at a particular level. How
many times have you been watching a stock at a particular level and wonder whether it has the juice to get
through a certain level. The trade volume index will peel back the onion and show you what traders are
doing. For example, if you want to buy a stock on a break of $100, and it has been flat lining for 2 hours,
you may hesitate on pulling the trigger due to the flatness in the market before the breakout. However, if
you see that the TVI has been rising over this 2-hour period, it is a sign that traders are accumulating the
stock at the ask price, thus increasing the odds that the stock will have legs when it clears resistance.

How to Calculate the TVI

The trade volume index is calculated by using the following formula

MTV = Minimum Tick Value

Change = Price minus the extreme price since direction changed

If Change is greater than MTV, then Direction = Accumulate

If Change is less than MTV, then Direction = Distribute

If Change is less than or equal to MTV and Change is greater than or equal to MTV, then Direction = Last
Direction

Lastly, we must calculate the TVI, which is simple once you know the Direction.

If Direction is Accumulate, then TVI = previous TVI + Volume

If Direction is Distribute, then TVI = previous TVI - Volume

Net Volume Indicator Should we Care?

net volume indicator

I quite frequently perform research on technical indicators and to be honest, net volume never peaked my
interest. Therefore, I have decided to explore in this article why I am not enamored with the indicator.
Unlike other indicators discussed on Tradingsim, net volume is easy to calculate. If the stock finishes up for
the period, then the net volume is positive. If the stock is down from the previous close, then the net volume
is negative.

In this article I will cover the 5 reasons I think net volume is my least favorite of volume indicators.

#1 - Too Simple
I am all for simplifying my life, starting with my trading indicators. However, there needs to be a little more
to the net volume indicator. For starters, the indicator does not factor in a look back period like the volume
weighted moving average or cumulative figures like the on balance volume (OBV) indicator.

The net volume simply looks at the current volume statistics for one candlestick. Now you could be
thinking, well it is the trader's responsibility to determine the look back period and this is a true statement.

But, what about the crazy idea that your indicator should provide a consistent way of analyzing the market
and not totally leaving it up to you to interpret.

net volume indicator look back period

As you can see in the above chart, what is the net volume telling us? You can see the spikes higher on the
lows set, but the stock is clearly in a downtrend, so no surprises there.

Again, how far do you look back? This performance period will ultimately determine how you should
interpret the data and without that my friend, the indicator is way too subjective.

#2 - Positive versus Negative Readings


When you read articles and books on the net volume, there is a lot of mention about gauging if there is more
positive or negative readings, which could implicate the strength of the trend.

This is a faulty assumption, as you could have a stock float lower or higher with low volume. Therefore, the
net volume could continuously print a positive value on the indicator as a stock is rising, but this is no
indication of the strength of the trend.
The positive reading could represent the fact the strong hands are letting the small fish drive up the stock,
only to enter a significant sell order at a loftier price.

To further illustrate this point, let's take a look at the charts.

net volume bigger view

Notice how after the push higher into the noon or lunch time reversal zone, the stock then begins to trade
lower. Next, notice how the volume on the downside is much lighter, yet the stock continued lower for over
2 hours.

So, the net volume indicator showed a ton of low volume negative readings, but did it mean anything? Did
price all of a sudden stop because the volume was no? No, it was a slow bleed down if you bought in right
around noon.
#3 - Lacks Predictive Capabilities
The net volume is a snap shot view indicator, candlestick by candlestick. Now you can make general
assumptions that the stock will continue higher if the trend is up, but isn't that something you can assess with
the price chart?

Meaning, how does the net volume further help you to identify the true nature of a stock's trend or pending
breakout?

If anything, the net volume can be used as a lagging indicator to validate price action. Therefore, if you see
a breakout and the net volume is high on the upside, then this may lead you to believe the trend will
continue.

However, the net volume indicator in no way will tell you that a stock is somehow overbought or oversold.
If you are looking for this level of forecasting capabilities within the net volume, you will be sadly
disappointed.

#4 - Visually Hard to Interpret


When you look out into the world, everything is in 3 dimensions. You are also looking at the world right
side up.

What throws me off about the net volume indicator is the fact the histogram or columns (depending on your
settings) will print above and below the 0 line. I find it extremely difficult to then assess the trend as the
spikes of the net volume indicator could be on opposite sides of the plane.

To see the indicator print side-by-side, makes it easier to assess the strength of the volume relative to each
bar. This becomes increasingly challenging to assess when there are volume spikes.

net volume indicator missing bars

I totally get the fact the bars are there, but it just feels like something is missing when the bars don't print
next to each other. Having this visual break in data, is almost like trying to pick a book back up again after
you haven't read a page in weeks. You know you are picking up where you left off; the story just feels
fresh because you didn't read it every day.

#5 - Plain Volume is Just Better


In life, some things are better just left alone. The volume indicator by itself provides more than enough
information to traders. I get all of the information provided by the net volume and I also can see the
indicator more clearly on the chart.

net volume versus volume

When I look at the above example, it's practically impossible to see the net volume indicator readings. Not
that the volume indicator is a cake walk either, but I can at least make out the color of the volume bars and
the wider width makes it easier to see as well.

In Summary
I know this article was pretty tough on the net volume indicator, but we as traders need to be more critical of
our tools. You need to constantly review and challenge the need for every item on your chart.

If I am still unable to sway you away from the net volume indicator, feel free to visit our homepage to see
how you can practice using the indicator on real market data.

Good Luck Trading,

Al

Volume Rate of Change Technical Analysis Indicator

Volume Rate of Change Definition

The volume rate of change (ROC) is a technical indicator used to gauge the volatility in a security's volume.
The volume rate of change is a powerful indicator when estimating a security's ability to push through key
resistance. The volume ROC is calculated the exact same way as the rate of change indicator except instead
of tracking the closing price it tracks volume.

Volume Rate of Change Formula


The volume ROC is calculated by dividing the volume over the last "x" periods by the volume over the last
"x" periods ago. If the volume from today is lower than "x" periods ago, then the volume ROC is trending
lower. Below is the formula for the volume ROC:

Volume ROC = ((Volume - Volume n-periods ago )/ Volume n-periods ago) *100

Interpreting the Volume ROC

The volume rate of change indicator is subjective like many other technical indicators and requires an
intermediate level technical analysis education. The first question you have to ask yourself is how many
periods should feed the input for the indicator. The shorter the periods, the greater price fluctuations will
occur for the volume ROC indicator. Assuming you have selected the correct input value for the timeframe
you are trading on, you want to see the volume ROC pick up significantly as it breaks through resistance.
This is a sign that you are correct in your long position and the trend should remain intact for the near term.

Positive Volume Index Technical Indicator

Positive Volume Index Definition

The positive volume index (PVI) is an indicator which tracks volume as it increases from the previous day.
It was first introduced by Norman Fosback in the book Stock Market Logic. The belief behind the indicator
is that as volume increases, the investment community is unified with the current direction of the market. As
this indicator shows the actions of the majority, it is often used as a contrarian indicator. Many professional
traders utilize the PVI to assess what the smart money is doing in the market. The assumption is that on quiet
days, large institutions are active in the market.

PVI Trading Signals

The most popular signal for the positive volume index is when the index drops below its 1 year moving
average. Fosback believes that when this occurs, there is a 67% probability that a bear market is fast
approaching.

Postive Volume Index Formula

If the current volume is greater than the previous day, then the formula for the PVI is as follows:

PVI = Previous PVI + ((Close - Previous Close)/Previous Close) * Previous PVI))

Conversely, if the current day's volume is less than the previous day's volume, then the formula for Positive
Volume Index is as:

PVI = Previous PVI

What Message is Low Trading Volume Sending?


By Dan Moskowitz

Its often reported that volume for U.S. equities is low right now. This is only true relative to the financial
crisis, which began in late 2007 and ended in early 2009. If you compare todays volume to that time frame,
it would seem as though the majority of investors and traders opted to go elsewhere. However, if you look at
todays volume compared to prior to the financial crisis, you will see that todays volume is actually high.
The chart below tells the story:
The catch is that nearly a decade ago doesnt matter much. What matters is that volume has been very low
over the past month and that more money is leaving than entering the market. Why is money leaving the
market and what does it mean for the future? (For more, see: Market Breadth: Volume Studies.)

Moving Out

According to Bank of America Merrill Lynch, $44 billion has left the market over the past five weeks. The
most likely reason for this mass exodus is risk outweighing reward. This should come as no surprise given
what has been a seven year and potentially aging bull market.

Central banks around the world helped fuel the rally with low interest rates and other creative maneuvers.
Several central banks have moved to negative interest rates, which is proving to be a failed policy. This
leaves them with almost nowhere else to go.

Forget negative interest rates for a moment and focus on the domestic situation. The longer low interest rates
are in place, the less impactful they are. Savvy investors are aware of this and are now beginning to take
their profits. The lack of growth can be seen in four consecutive quarters of negative earnings growth. The
only reason the first quarter looked good was due to extremely low expectations. Other concerns include
China, slowing buybacks and the presidential election.

The lower volume is due to reduced investor interest. Without organic growth, the Federal Reserve must be
relied on. But the Fed is nearly tapped out. That being the case, corporations must buy back shares to create
demand. Buybacks are slowing due to their cost, dampening effectiveness and the anticipation of a rate hike.

There is simply not much reason to be bullish on stocks at the moment. On the other hand, a new narrative is
emerging, which is that hiked interest rates would benefit the economy and stocks. Well see how that plays
out.

Using Volume Rate Of Change To Confirm Trends


By Investopedia Staf

Share
In Volume Oscillator Confirms Price Movement we looked at the measurement of volume by way of an
oscillator using two moving averages. In this article we look at the volume rate of change (V-ROC), and
we'll focus on the importance of price movements and volume in the study of market trends.

In the last decade, we've seen triple-digit swings on the Dow Jones Industrial Index to both the upside and
the downside. A newcomer to the science of technical analysis may not have realized that some of these
moves lacked conviction, as volume didn't always support the price movement. Chartists are not the least bit
interested in a 5 to 10% move in a stock price if the volume moving the price is a fraction of the normal
daily volume for that particular issue. On the other hand, since the Nasdaq market volume reaches or
surpasses two billion shares per day, significant price action will trigger the interest of analysts. If price
movements are significantly less than 5 to 10%, you might as well go golfing.

Volume Trend Indicator


The volume rate of change is the indicator that shows whether or not a volume trend is developing in either
an up or down direction. You may be familiar with price rate of change (discussed here), which shows an
investor the rate of change measured by the issue's closing price. To calculate this, you need to divide the
volume change over the last n-periods (days, weeks or months) by the volume n-periods ago. The answer is
a percentage change of the volume over the last n-periods. Now, what does this mean? If the volume today is
higher than n-days (or weeks or months) ago, the rate of change will be a plus number. If volume is lower,
the ROC will be minus number. This allows us to look at the speed at which the volume is changing. (For
more on trend strength, check out ADX: The Trend Strength Indicator.)

One of the problems that analysts have with the V-ROC is determining the period of time to measure the rate
of change. A shorter period of 10 to 15 days, for example, would show us the peaks created by a sudden
change, and, for the most part, trendlines could be drawn. For a more realistic look, I would suggest using a
25- to 30-day period; this length of time makes the chart look more rounded and smooth. Shorter periods
tend to produce a chart that is more jagged and difficult to analyze.

Figure 1: Volume Rate of Change - 14-Day Period

Chart Created with Tradestation


In the chart of the Nasdaq Composite Index, you can see a classic sell-off with the V-ROC reaching a high of
249.00 on December 13, 2001 (based on a 14-day period). In fact, if you study the chart closely, you can see
that the ROC becomes positive for the first time on Dec 12, 2001, with a measurement of 19.61. On the next
day the measurement jumps to 249.00 on the closing. The Nasdaq, however, had a high of 2065.69 on
December 6 (ROC, +8.52) and then fell to negative numbers until December 12. By using a 14-day period,
we cannot recognize this slide until the Index loses 119.18 points (approx. 6.5%) to the level of 1946.51.
This would confuse most, were it not for the ability to change our period of time, in this case, to a 30-day
period, shown in Figure 2.

Figure 2: Volume Rate of Change - 30-Day Period

Chart Created with Tradestation

In the second chart of the Nasdaq Composite Index, which uses a 30-day period, you can clearly see that in
and around December 12 and 13, 2001, the ROC barely shows a positive number, and it is not until January
3, 2002 that a positive number appears, as the price action rises substantially from 1987.06 to 2098.88. On
the ninth of the month, there is a move to the upside of 111.82 points. This positive value means there is
enough market support to continue to drive price activity in the direction of the current trend. A negative
value suggests there is a lack of support, and prices may begin to become stagnant or reverse.

We can see that even with a 14-day period, the V-ROC over the year shown on this chart, for the most part,
moves quietly above and below the zero line. This indicates that there is no real conviction for there to be a
trending market. The only real jump in price action that most investors missed is the move in late July,
occurring over a period of five trading days, which, as you can see in the chart, has given almost everything
back. Another interesting point is the lack of volume behind the price action as it moves upward. This is
evident in the period from August 5, 2002, when the Nasdaq closed at 1206.01, to Aug 22, 2002, when the
index closed at 1422.95. During this time, the V-ROC remained negative, indicating to all technical analysts
that the increasing price in the index would not hold.

The Bottom Line


Using the previous volume indicators, you can confirm price movements that have conviction and avoid
buying or selling based on blips in the market that will soon be corrected. Watch the volume, and the trends
will follow. Remember it's your money - invest it wisely.

Essential Strategies For Trading Volume


By Casey Murphy

The number of shares bought and sold each day in any given financial instrument, known as volume, is one
of the most accurate ways of gauging money flow. For those who are new to the markets, money flow is
used by traders to determine the overall supply and demand characteristics or a financial instrument in an
attempt to predict its future direction. High volume suggests that there is a heightened interest in the name,
and if it is combined with a move higher in share price, then it is often used as a signal of strong upward
momentum. Keeping an eye on volume will ensure you are on the right side of the trade. Each of the
indicators discussed below use volume as the primary input and will give you a practical view on how to
incorporate volume into your trading strategy. (For more, see: How to Use Volume to Improve Your Trading.)

Taking a Closer Look at Volume

Taking a look at the chart of Delta Air Lines Inc. (DAL

Delta Air Lines Inc (DE)

DAL

46.21

+0.21%

), shown below, you can see a huge spike in volume on Sept. 10, 2013 thanks to an
announcement that the company would join the S&P 500 stock market index. The strong
move higher in the stock price, combined with a spike in volume, suggested that there was
renewed interest in the stock and it marked the beginning of a strong move higher. In general,
it is best to align a strong surge in volume with a strong shift in the companys fundamentals.
In the case of DAL, the addition to the S&P 500 suggested that large index funds and mutual
funds would be adding positions. That would add a layer of underlying demand that would
push prices higher. Screens for spikes in volume would have brought this stock to the
attention of active traders. (For further reading, see: Using Volume to Confirm Trends.)
On-Balance Volume

The On-Balance-Volume indicator, commonly referred to as OBV, is used to find stocks that have been
experiencing sharp increases in volume without a significant change to stock price. When institutional
investors start buying shares, one of the goals is to refrain from pushing the price higher so that they can
keep their average entry price as low as possible. This is where the OBV indicator proves extremely useful.
Before diving into an example, it's important to note that the indicator is calculated by adding volume to the
previous OBV value when the most recent closing price is greater than the previous closing price. If the
closing price is lower than the previous close then the volume is subtracted from the previous OBV value
(for more, see: On-Balance Volume: The Way to Smart Money). Now, lets look at an example:

As you can see from the chart of Microsoft Corp. (MSFT

Microsoft Corp

MSFT

65.15

+0.17%

), the price trended sideways between $34.80 and $37.00 in late 2013 and early 2014. Notice
how the OBV indicator was trending sharply higher during this period. The increasing OBV
suggests that traders were becoming bullish on the stock and a stock screen for rising OBV
values would have allowed active traders to get in early before the rise to $41.11. (For more,
see: Confirming Price Movements with Volume Oscillators.)
Volume By Price

Another common strategy that uses volume is to utilize the volume by price indicator. In most cases, volume
is plotted at the bottom of a chart as shown in the examples above. In the case of volume by price, it is
plotted on the vertical axis so that a trader can get an idea of the volume traded at various price points.
Levels with extreme volume can be used to identify areas where the smart money has decided to actively
pursue a position. Strong volume moves at key price points is often used by active traders to identify key
areas of support and resistance and can generate strategic buying/selling signals when combined with other
indicators. (For more, see: Confirming Price Movements with Volume Oscillators.)

As you can see from the chart of AmerisourceBergen Corp. (ABC

AmerisourceBergen Corp

ABC

87.35

+0.79%

), most trading during 2014 occurred between $71.50 and $73 as identified by the volume by
price indicator (blue bar used to illustrate the key trading range). In the event of a broad
market sell-of, traders would expect the stock to find support near $73. Notice how there was
little volume between $74 and $76 because of the gap. Traders would expect little support
from buyers between these areas in the event of a pullback. (For more, see: Gauging Support
and Resistance with Price by Volume.)
The Bottom Line

Volume is one of the key indicators used by active traders for gauging money flow. As youve seen in the
examples above, indicators that are derived from using volume such as on-balance volume and volume by
price can be used to create lucrative trading strategies. It's often a smart idea to combine trading signals
generated by changes in volume with a shift in a companys fundamentals. Simple stock screens that identify
securities with sharp changes in volume are great candidates for traders looking to create a watch list.

3 Trading Indicators to Combine with the Klinger Oscillator


What is the Klinger Volume Oscillator?
The Klinger Volume Oscillator (KVO or KO) is a volume-based indicator, which assists traders to identify a
longer-term view of price trends. Since the KVO is a leading indicator (oscillator), it is not a great
standalone trading tool. For this reason, traders often combine the KVO with other trading indicators in
order to achieve higher accuracy when making trade execution decisions.

The Klinger Oscillator consists of two lines, which fluctuate above and below the zero level. The image
below shows the KVO indicator in action:
Klinger Oscillator

It resembles a cardiogram, dont you think?

If you havent used the Klinger Volume Indicator before, you would probably consider it pretty chaotic and
unorganized because of the strong fluctuation of its most important component the blue line.

The blue line on the image is the KVO line. This line is a calculation of the difference between the 34-period
and 55-period EMAs, which day traders call volume force (VF). The green line is a normal 13-period
EMA, which averages the fluctuation of the KVO line.

What signals does the KVO indicator gives?


Since the green EMA averages thirteen periods of the KVO, we have many interactions between the two
lines, thus creating the most common signal of the Klinger Volume Oscillator Indicator. Whenever the blue
KVO line crosses the green 13-period EMA, the KVO indicator signals an eventual move in the direction of
the cross.

The other important signal of the Klinger Indicator is the divergence. We get a bearish divergence when
price increases and the KVO is negative. Conversely, a bullish divergence occurs when the price is
decreasing and the KVO line is positive.

Below you will find an example of a strong bearish divergence between the price of Coca-Cola and the
Klinger Volume Oscillator:
Klinger Divergence

As you see, divergences by the KVO work the same way as most other oscillators. While the price of Coca-
Cola was increasing, the KVO indicator was decreasing steadily. Shortly after this divergence appeared,
Coca-Cola quickly dropped one dollar.

Nevertheless, we should not forget that the Klinger Volume Oscillator is a leading indicator, which makes it
inefficient as a standalone indicator.

In this article we will cover three indicators you can combine with the KVO indicator to increase your odds
of success.

Which tools can we combine with the Klinger?


Stochastic Oscillator

The Klinger Oscillator formula could be strengthened with a Stochastic Oscillator. Since the Stochastics
Indicator is also an oscillator, we will have two leading signals helping us to eliminate false signals. The
rules are simple:

You open a position whenever the KVO line breaks its 13-period SMA but only if the Stochastic Oscillator
gives a signal in the same direction (overbought or oversold). You close the position whenever the KVO
crosses its EMA in the opposite direction, but only if the Stochastic gives a signal, which is opposite to your
position.

An interesting point regarding the Klinger Volume Oscillator is that you are always in the market, because
the open and the close signals are identical. Meaning, whenever you close a position, you should open a
counter position.

Note that this is more of a short-term trading strategy and is more effective on smaller-period charts. Since
you are going to be in the market most of the time, you will accumulate big volumes, which will result in
many losses and many profits. The point is to keep your win ratio slightly higher.

The example below demonstrates how this strategy works:


Klinger with the Stochastic Oscillator

This is a 15-minute chart of Microsoft from September 4-11, 2015, showing 5 positions, which I take
according to the strategy described above. We have three long and two short positions, where the only
unsuccessful one is the last long. The total profit we get here is about $2.80 per share.

This is again illustrative, but the main point to take away is that you are constantly in the market.
Experience has shown me over the years, that systems requiring traders to always be in the market are hard
to maintain, because you will try to start picking the winners from the losers. This selective process
overtime hurts your ability to benefit from the law of averages and ultimately results in a downward sloping
equity curve.

Parabolic SAR

The combination Klinger plus the Parabolic SAR is not very common among day traders. Yet, I find it
effective, because of the difference between the two instruments - the KVO is a leading indicator while the
Parabolic SAR is a lagging indicator. As we previously stated, leading indicators give many false signals.
For this reason, we now add a lagging indicator, which will isolate a big part of the KVO head fakes, thus
shedding light on high probability trades. Remember that as a typical lagging indicator, the Parabolic SAR
needs a closing price before printing a dot.

What I suggest here is to be in the market whenever the KVO line switches above its 13-period EMA if the
Parabolic SAR supports this signal with at least three dots in the same direction. If there arent three dots in
your direction, do not open a position. We close our position whenever we get three dots in the opposite
direction. Lets see now this strategy performs in a real market scenario:

Klinger and Parabolic SAR


This is a 60-minute chart of Bank of America from the month of October 2015. The example shows how we
get 7 signals to take a position in the market, but thanks to the Parabolic SAR, we isolate only three of them
where we actually open a position. Therefore, out of three positions, we had 2 successful and 1 unsuccessful
trades, resulting in a total profit of $0.90 per share.

The key positive for this trading strategy is that you are not constantly in the market. As a trader, you need
time to take a breathier and digest what is in front of you, in order to avoid trading fatigue. Like anything in
life, if you try to complete a task when you are exhausted, your quality of work will suffer.

Two Moving Averages and Volume

In this trading strategy, we place two moving averages and volume in addition to our Klinger Indicator. We
are going to open positions only when (1) price closes above both moving averages, (2) the KVO line is on
the same side of its 13-period EMA and (3) there is a surge in trading volume.

Below you will see an image, which shows how I successfully combined the Klinger with two SMAs and
volume:

Klinger - SMAs - Volume

This is a 10-minute chart of IBM showing its price movement from October 22-27, 2015. We have included
our Klinger Oscillator, 15-period SMA, 20-period SMA and volume. The first circle on the Klinger Volume
Oscillator histogram shows us the moment when the KVO line crosses its 13-period EMA in a bullish
direction. This happens during relatively high volumes. At the same time, the price of IBM just switched
above the two SMAs, which cross each other in a bullish direction. Long we are! We close our position with
the first candle outside the 15-period simple moving average (red).

The next position is unsuccessful. We get pleasant market conditions for a short position, but contrary to our
idea, IBM starts gaining and we close shortly thereafter. This is the moment when the volumes start playing
their most important role. As you see in the upper blue rectangle, volumes are low. At the same time, the
KVO line acts erratically and gives numerous false signals. Since the volumes are low, we do not take these
signals under consideration.

We do open a short position when we get the next big volume candle, price closes beneath the two SMAs
and the KVO crosses beneath the 13-period EMA. This scenario repeats once again triggering our fourth
position.

So, here we opened 4 positions where only one was unsuccessful. The other three positions resulted very
positively to our bankroll - with a total profit of $3.4 per share.
Bonus Content - Klinger Oscillator vs. Awesome Oscillator
The Awesome Oscillator looks calm in comparison to the KVO, which appears rather chaotic. However, the
Klinger Oscillator provides a greater number of trading signals because of this dynamic.

Some of the signals are false, but there are secondary tools you can use to validate the trade signals. After
all, you will need to use validation tools with the Awesome Oscillator as well. So, why not take advantage of
the indicator which provides more signals?

Klinger versus Awesome Oscillator

This is a 10-minute chart of Facebook, showing the price of the security from October 22-26, 2015. The
Awesome Oscillator in the lower part of the image shows 8 saucer formations. Notice that all the Saucer
places completely match the parameters of the blue bullish trend line and at the same time, its corrections.
The trend line is well contained by the saucers until the Awesome Oscillator switches below the zero level
and at the same time, the price of Facebook creates a bearish gap.

The Awesome Oscillator is also good for discovering divergences and drawing chart patterns on it pretty
much like the Klinger Volume Oscillator. However, the truth is that these two trading tools are very
different. First of all, the KVO is a volume-based oscillator, while the AO is about determining the prices
momentum. Second, the KVO consists of two lines, while the AO is a bar histogram with red and green
bars. Third, the movement of the KVO is relatively more fluctuating, because this indicator represents the
inconsistent trading mood of the participants in the market in different time frames and market overlaps.

Honestly, out of these two trading instruments, I prefer the Klinger Oscillator more. The reason is the level
of detail it displays, makes you prepared for every trade opportunity. I believe that if you combine the
Klinger Oscillator with the right technical indicator, you will uncover more trading setups than if you used
the Awesome Oscillator.

In Conclusion:
The Klinger Indicator is a volume-based oscillator.

It consists of two lines, where one of them is very dynamic.

Its basic signals are the interaction between the two lines and the divergence.

The KVO is not a good solo player, because it is a leading indicator.


The KVO could be successfully combined with:

- Stochastic Oscillator

- Parabolic SAR

- 2 Moving Averages and Volumes

KVO gives more signals than the Awesome Oscillators.

Many of these signals are false and should be validated by a secondary tool.

In this manner, KVO gives higher number of accurate signals too.

KVO will keep you busy!

Volume-by-Price

Introduction

Volume-by-Price is an indicator that shows the amount of volume for a particular price range, which
is based on closing prices. The Volume-by-Price bars are horizontal and shown on the left side of the
chart to correspond with these price ranges. Chartists can view these bars as a single color or with
two colors to separate up volume and down volume. By combining volume and closing prices, this
indicator can be used to identify high-volume price ranges to mark support or resistance. StockCharts
shows twelve Volume-by-Price bars by default, but users can increase or decrease this number to suit
their preferences.

Calculation
Volume-by-Price calculations are based on the entire period displayed on the chart. Volume-by-Price
on a five month daily chart would be based on ALL five months of daily closing data. Volume-by-
Price on a two week 30-minute chart would be based on two weeks of 30-minute closing data.
Volume-by-Price on a three year weekly chart would be based on three years of weekly closing data.
You get the idea. Volume-by-Price calculations do not extend beyond the historical data shown on
the chart.

There are four steps involved in the calculation.
This example is based on closing prices and the
default parameter setting (12).

1. Find the high-low range for closing prices for the entire period.
2. Divide this range by 12 to create 12 equal price zones.
3. Total the amount of volume traded within each price zone.
4. Divide the volume into up volume and down volume (optional).

Note that volume is negative when the closing price moves down from one period to the next.
Volume is positive when the closing price moves up from one period to the next.

The example above shows a Volume-by-Price calculation taken for the Nasdaq 100 ETF from April
12th until September 15th 2010. Closing prices ranged from 40.32 to 47.87 during this period (47.87
40.32 = 7.55). The one hundred and ten closing prices (one for each trading day) were sorted from
low to high and then divided into 12 even price zones (7.55/12 = .6292).

The chart above highlights the first three price zones (40.32 to 40.95, 40.96 to 41.58 and 41.59 to
42.21). Starting from the low (40.32), we can add the zone size (.6292) to create the price zones
leading to the high. Only prices that fall within these zones are used for that particular Volume-by-
Price calculation.

The Volume-by-Price bars represent the total volume for each price zone. Volume can then be
separated into positive and negative volume. Notice that the Volume-by-Price bars on the chart above
are red and green to separate positive volume from negative volume.

Interpretation
Volume-by-Price can be used to identify current support and resistance levels as well as estimate
future support and resistance levels. Price zones with heavy volume reflect elevated interest levels
that can influence future supply or demand (a.k.a. resistance or support). Long Volume-by-Price bars
underneath prices should be watched as potential support during a pullback. Similarly, long Volume-
by-Price bars above prices should be watched as potential resistance on a bounce.
Price breaks above or below long Volume-by-Price bars can also be used as signals. A break above a
long bar shows strength because demand was strong enough to overcome a supply overhang.
Similarly, a break below a long bar shows weakness because supply was ample enough to
overwhelm demand.

Nuances
Before looking at some examples, it is important to understand how Volume-by-Price works.
Volume-by-Price can be used to identify current support or resistance. Current bars should not be
used to validate past support or resistance levels because the indicator is based on all the price-
volume data shown on the chart. This means six months of data for a chart that extends from January
to June. Bars may appear to identify support in March, but keep in mind that the indicator data
extends well beyond March because the chart ends in June.
Chartists should also understand that big gaps can produce bars that equal zero. This makes sense
because Volume-by-Price equals zero when there are no closing prices within a specific price zone.

Identifying Support
The chart for Netflix (NFLX) shows Volume-by-Price identifying support around 95-100 at the end
of June. Notice that this is the longest bar. Also notice that NFLX is beginning a pullback so we can
use Volume-by-Price to estimate support in the near future. The second chart shows NFLX with the
yellow area marking Volume-by-Price support from the first chart. Support was expected in the 95-
100 area and the stock reversed here in late July. Notice that volume surged in August to validate the
reversal off support.

Identifying Resistance
The chart for TE Connectivity (TEL) shows Volume-by-Price identifying resistance around 26-26.5
in early August. Remember, the April break above this bar is not really a breakout because the
current Volume-by-Price calculation extends from January to early August. The second longest bar
marks current resistance in the 26-26.5 area. TEL is at its make-or-break point with prices near
resistance. The second chart shows Volume-by-Price resistance from the first and the ultimate failure
at resistance.

Support Breaks
A break below a long Volume-by-Price bar signals increasing supply or selling pressure that can
foreshadow lower prices. Long bars below prices show elevated interest areas and potential support.
A break below this support zone signals a significant increase in selling pressure and lower prices are
then expected.
The SanDisk (SNDK) chart shows a long Volume-by-Price bar marking support in the 39-43 area in
mid August. Also notice that the stock forged at least three reaction lows around 42 from early July
to mid August. This support (demand) zone is clearly marked. The second chart shows SNDK
breaking below the previously identified Volume-by-Price support zone with high volume. Demand
crumbled, supply won the day and prices moved sharply lower.


Resistance Breaks
A break above a long Volume-by-Price bar signals an increase in demand that can foreshadow higher
prices. Long bars above prices mark supply overhangs that demand has not been able to overcome. A
break above this resistance zone signals strengthening demand and higher prices are expected.
Sometimes chartists need to combine price action and Volume-by-Price to identify support zones and
resistance zones. The McDonalds (MCD) chart shows a long bar marking overhead supply between
60 and 61. The stock also met resistance between 61 and 62 with reaction highs in late April and mid
June. For support, the second and third longest bars mark potential demand in the 57.5-58.5 area and
the stock is near the late May low. Overall, a large Symmetrical Triangle could be forming on the
price chart as MCD tries to hold above the late May low. The second chart shows MCD breaking
resistance in July and surging to new highs in August.


Conclusions
Volume-by-Price is best suited for identifying present or future support and resistance. The indicator
marks potential support when prices are above a long bar and potential resistance when prices are
below a long bar. Chartists can enhance their analysis by looking at the positive (green) and negative
(red) volume within the Volume-by-Price bars. Long green portions reflect more demand that can
further validate support. Long red portions reflect more supply that can further validate resistance. It
is important to confirm Volume-by-Price findings with other indicators and analysis techniques.
Momentum oscillators and chart patterns are good complements to this volume based indicator.

SharpCharts
Volume-by-Price can be found in SharpCharts in the overlays section. The parameter box is empty
and this means the default is used (12 periods). Chartists can increase or decrease the default setting
depending on the amount of detail desired. Keep in mind that Volume-by-Price is based on closing
prices, which means highs and lows are not included. This is why chartists may sometimes see a
spike low or high without a Volume-by-Price bar. Volume-by-Price is one color when the color
volume box is not checked and two-toned when this box is checked. Chartists can also use the
advanced indicator settings to set the opacity. The example below shows Apple with 20-bar Volume-
by-Price, colored volume and 0.3 opacity. Click here for a live example.

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