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4 Simple Volume Trading Strategies Why is Volume Important?

4 Simple Volume Trading Strategies Why is Volume Important? Volume Volume analysis is the technique ofday 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 " id="pdf-obj-0-4" src="pdf-obj-0-4.jpg">

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

Strategy 1 - Breakouts and Volume

Breakouts and Volume Traders will often look for breaks of <a href=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. " id="pdf-obj-1-2" src="pdf-obj-1-2.jpg">

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?

Breakouts and Volume Traders will often look for breaks of <a href=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. " id="pdf-obj-1-18" src="pdf-obj-1-18.jpg">

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 haveswing 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. " id="pdf-obj-2-2" src="pdf-obj-2-2.jpg">

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

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?

Valid Breakout Let's test to see if you are picking up the concepts of breakouts with

Breakdown or not?

Come on, don't cheat!

Breakdown The answer to my question - you have no idea if the stock will havemoney 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 " id="pdf-obj-4-2" src="pdf-obj-4-2.jpg">

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 topullback . 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. " id="pdf-obj-5-2" src="pdf-obj-5-2.jpg">

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.

Trending Stocks When a stock is moving higher in a stair-step approach, you will want topullback . 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. " id="pdf-obj-5-14" src="pdf-obj-5-14.jpg">

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.

As the stock moves in your favor, you should continuously <a href=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. " id="pdf-obj-6-8" src="pdf-obj-6-8.jpg">

Weak Trend 1

As the stock moves in your favor, you should continuously <a href=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. " id="pdf-obj-6-12" src="pdf-obj-6-12.jpg">

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

In Summary 1. Look for volume to push the stock in the direction of the primarynews 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. " id="pdf-obj-7-14" src="pdf-obj-7-14.jpg">

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 volumefocus 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. " id="pdf-obj-8-2" src="pdf-obj-8-2.jpg">

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 ofmorning gap and volume to drop off " id="pdf-obj-9-2" src="pdf-obj-9-2.jpg">

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.

Long Wick Let's take another look at a long wick setup. The below chart is ofmorning gap and volume to drop off " id="pdf-obj-9-8" src="pdf-obj-9-8.jpg">

Another Long Wick

In Summary

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

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

3. Take a position in the direction of the primary trend with a price target offirst 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. " id="pdf-obj-10-9" src="pdf-obj-10-9.jpg">

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.

3. Take a position in the direction of the primary trend with a price target offirst 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. " id="pdf-obj-10-17" src="pdf-obj-10-17.jpg">

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. NoticeAlan Farley | May 20, 2015 — 2:00 PM EDT Share " id="pdf-obj-11-2" src="pdf-obj-11-2.jpg">

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

False Breakout 2 The above example of ESPR would drive me crazy 6 years ago. NoticeAlan Farley | May 20, 2015 — 2:00 PM EDT Share " id="pdf-obj-11-28" src="pdf-obj-11-28.jpg">
<a href=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 ) . It’s 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 day’s 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 securit y is set to p rint 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. Avera g e dail y volume often comes preloaded in charting packages, attuned to either a 50 or 60 day simple moving average ( SMA). It’s 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 isn’t required because the output is used to build a broad estimate of participation rather than an exact numerical level. It’s 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 " id="pdf-obj-12-2" src="pdf-obj-12-2.jpg">

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).

It’s 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 day’s 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). It’s 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 isn’t required because the output is used to build a broad estimate of participation rather than an exact numerical level. It’s 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:

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 session’s 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, it’s 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 stock’s 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 there’s 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 there’s low volume, it means the breakout is probably false.

Volume history should be considered using only recent figures. Comparing today’s 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:

the short-term in the direction of the primary trend. If the volume oscillator is in thehow 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. " id="pdf-obj-14-14" src="pdf-obj-14-14.jpg">

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.

Apple Breakout The first example is of a breakdown of Apple on a <a href=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. " id="pdf-obj-15-8" src="pdf-obj-15-8.jpg">

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 examplebull 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. " id="pdf-obj-16-2" src="pdf-obj-16-2.jpg">

Apple Much Lower

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

Apple Much Lower Now that we have shown the happy path, let's dig into an examplebull 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. " id="pdf-obj-16-8" src="pdf-obj-16-8.jpg">

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.

Just as with any other indicator, you need to see both <a href=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. " id="pdf-obj-17-20" src="pdf-obj-17-20.jpg">

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.

#3 - Volume Oscillator and Choppy Markets You figure this one out and I will givegold 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. " id="pdf-obj-18-12" src="pdf-obj-18-12.jpg">

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.

It's just the law of averages. Below is an example of where the volume oscillator was

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.

Trading is the same way. As you begin to hone your craft, you may find yourself

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 outtrend 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 p rovides 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 " id="pdf-obj-21-2" src="pdf-obj-21-2.jpg">

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?

investors are less concerned with intraday data and <a href=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 y ou want to bu y 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. " id="pdf-obj-22-42" src="pdf-obj-22-42.jpg">

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.

Unlike other indicators discussed on <a href=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. " id="pdf-obj-23-25" src="pdf-obj-23-25.jpg">

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.

The positive reading could represent the fact the strong hands are letting the small fish drivesell 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. " id="pdf-obj-24-8" src="pdf-obj-24-8.jpg">

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.

#3 - Lacks Predictive Capabilities The net volume is a snap shot view indicator, candlestick byprice 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 " id="pdf-obj-25-28" src="pdf-obj-25-28.jpg">

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.

you haven't read a page in weeks. You know you are picking up where you lefthomepage 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 " id="pdf-obj-26-8" src="pdf-obj-26-8.jpg">

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?

It’s 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 today’s 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 today’s volume compared to prior to the financial crisis, you will see that today’s volume is actually high. The chart below tells the story:

The catch is that nearly a decade ago doesn’t matter much. What matters is that volumeg the market. Wh y is mone y 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. We’ll see how that plays out. Using Volume Rate Of Change To Confirm Trends By Investopedia Staf Share " id="pdf-obj-28-2" src="pdf-obj-28-2.jpg">

The catch is that nearly a decade ago doesn’t 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. We’ll see how that plays out.

Using Volume Rate Of Change To Confirm Trends

The catch is that nearly a decade ago doesn’t matter much. What matters is that volumeg the market. Wh y is mone y 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. We’ll see how that plays out. Using Volume Rate Of Change To Confirm Trends By Investopedia Staf Share " id="pdf-obj-28-45" src="pdf-obj-28-45.jpg">

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.

In <a href=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 swin g s 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 s p eed 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 " id="pdf-obj-29-50" src="pdf-obj-29-50.jpg">

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.

In the chart of the <a href=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 q uietl y 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 " id="pdf-obj-30-10" src="pdf-obj-30-10.jpg">

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

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

), 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 company’s 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 <a href=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, let’s 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 .) " id="pdf-obj-32-2" src="pdf-obj-32-2.jpg">

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, let’s look at an example:

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

), 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 <aprice 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 .) " id="pdf-obj-33-2" src="pdf-obj-33-2.jpg">

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

), 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 gaugingKlinger 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: " id="pdf-obj-34-2" src="pdf-obj-34-2.jpg">

The Bottom Line

Volume is one of the key indicators used by active traders for gauging money flow. As you’ve 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 company’s 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, don’t you think? If you haven’t used the Klinger <aVolume 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: " id="pdf-obj-35-2" src="pdf-obj-35-2.jpg">

Klinger Oscillator

It resembles a cardiogram, don’t you think?

If you haven’t 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 otherfalse 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: " id="pdf-obj-36-2" src="pdf-obj-36-2.jpg">

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,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 aren’t three dots in your direction, do not open a position. We close our position whenever we get three dots in the opposite direction. Let’s see now this strategy performs in a real market scenario: Klinger and Parabolic SAR " id="pdf-obj-37-2" src="pdf-obj-37-2.jpg">

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.

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 aren’t three dots in your direction, do not open a position. We close our position whenever we get three dots in the opposite direction. Let’s see now this strategy performs in a real market scenario:

Klinger with the Stochastic Oscillator This is a 15-minute chart of Microsoft from September 4-11, 2015,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 aren’t three dots in your direction, do not open a position. We close our position whenever we get three dots in the opposite direction. Let’s see now this strategy performs in a real market scenario: Klinger and Parabolic SAR " id="pdf-obj-37-22" src="pdf-obj-37-22.jpg">

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:

This is a 60-minute chart of Bank of America from the month of October 2015. Thesimple 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. " id="pdf-obj-38-14" src="pdf-obj-38-14.jpg">

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?

Bonus Content - Klinger Oscillator vs. Awesome Oscillator The <a href=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 price’s 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. " id="pdf-obj-39-10" src="pdf-obj-39-10.jpg">

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 price’s 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!

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

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 example above shows a Volume-by-Price calculation taken for the Nasdaq 100 ETF from

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 thensupport 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. " id="pdf-obj-42-6" src="pdf-obj-42-6.jpg">

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

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 Support  The chart for Netflix (NFLX) shows Volume-by-Price identifying support around 95-100

  Identifying Resistance  The chart for TE Connectivity (TEL) shows Volume-by-Price identifying resistance around

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.

  Identifying Resistance  The chart for TE Connectivity (TEL) shows Volume-by-Price identifying resistance around

  Support Breaks    A break below a long Volume-by-Price bar signals increasing

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.

  Support Breaks    A break below a long Volume-by-Price bar signals increasing

  Resistance Breaks    A break above a long Volume-by-Price bar signals anSymmetrical 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. " id="pdf-obj-46-4" src="pdf-obj-46-4.jpg">

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.

  Resistance Breaks    A break above a long Volume-by-Price bar signals anSymmetrical 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. " id="pdf-obj-46-19" src="pdf-obj-46-19.jpg">

  Conclusions  Volume-by-Price is best suited for identifying present or future support and resistance.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.  " id="pdf-obj-47-4" src="pdf-obj-47-4.jpg">

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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