Volume-by-Price is an indicator that shows the amount of volume for a particular price range, which is based on closing prices. 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.
Volume Analysis (also referred to as price–volume trend and volume oscillators) is an example of a type of technical analysis that examines the volume of traded securities to confirm and predict price trends. Volume is a measure of the number of shares of an asset (such as a stock or bond) that are traded in a given period of time. As one of the oldest market indicators used for analysis, sudden changes in volume are often the result of news-related events. Commonly used by chartists and technical analysts, volume analysis is centered on the following ideas:
● When the volume of a security is increasing or at a relative peak, the current trend in price is confirmed and is said to have momentum
● When the volume of a security is decreasing or at a relative minimum, the current trend in price is fragile and is said to lack momentum
“The number of contracts traded during a given period of time.”
The volume represents all the recorded trades for a security during a specified period.
This specified period can range from daily charts to 1-minute charts.
Most trading platforms, Tradingsim included, print each volume bar as either green or red. Green bars are printed if the stock closes up for a period and red bars indicate a stock closed lower for a given period.
Volume Analysis is the most basic but one of the most oldest and important technical indicator. Volume Analysis is great method in assessing the health of the trend. Normally Volume precedes Price, so any sudden change in volume will lead to price action.
Quick Tips: If Stock moves up with more than average volumes, it is a healthy sign for the stock. If stock moves down with high volumes it signifies weakness in the scrip as strong hands are coming out of the stock.
● Volume is the number of shares of a security traded during a given period of time.
● Generally securities with more daily volume are more liquid than those without, since they are more “active”.
● Volume is an important indicator in technical analysis because it is used to measure the relative significance of a market move.
● The higher the volume during a price move, the more significant the move and the lower the volume during a price move, the less significant the move.
Volume is usually expressed as a series of vertical bars at the bottom of a chart. If 20 shares were traded, then the bar will show 20,000. Often a Volume Chart — will show Red Bars when the stock price has decreased for the day, and Green Bars for when the price rises for the day.
Every transaction that takes place between a buyer and a seller of a security contributes to the total volume count of that security. One transaction occurs whenever a buyer agrees to purchase what seller is offering for sale at a certain price. If only five transactions occur in a day, the volume for that day is set at five.
Each market exchange tracks its trading volume and provides volume data either for free or for a subscription fee. The volume of trade numbers are reported as often as once an hour throughout the current trading day. These hourly reported trade volumes are estimates. A trade volume reported at the end of the day is also an estimate. Final actual figures are reported the following day. Investors may also follow a security’s tick volume, or the number of changes in a contract’s price, as a surrogate for trade volume, since prices tend to change more frequently with a higher volume of trade.
Volume tells investors about the market’s activity and liquidity. Higher trade volumes for a specified security mean higher liquidity, better order execution and a more active market for connecting a buyer and seller. When investors feel hesitant about the direction of the stock market, futures trading volume tends to increase, which often causes options and futures on specified securities to trade more actively. Volume overall tends to be higher near the market’s opening and closing times, and on Mondays and Fridays. It tends to be lower at lunchtime and before a holiday.
There are many different types of stock charts: line, bar, OHLC (open-high-low-close), candlestick, mountain, point-and-figure, and others, which are viewable in different time frames: most commonly, daily, weekly, monthly, and intraday charts. Each style and time frame has its advantages and disadvantages, but they all reveal valuable price and volume information that you can use to make profitable investing decisions.
There are many different types of stock charts that display various types of information, however all stock charts display price and volume. On this stock chart, the blue and magenta colored marks represent the price history. The amount of trading history each bar represents is based on the period of a chart. For example, on a daily stock chart, each price bar represents the prices the stock traded during that day. On a weekly stock chart, each price bar represents the prices the stock traded during that week.
The length of each vertical bar illustrates a stock’s high-low price range. The top of the bar corresponds to the highest price paid for the stock during that period, and the bottom of the bar corresponds to the lowest price paid. The small intersecting horizontal slash indicates the current price or where a stock closed at the end of the period. The price bar will be presented in blue if the price of the most recent trade is equal to or greater than the previous period’s last price, or magenta, if it is less than the previous period’s price close.
The vertical lines displayed at the bottom of the chart represent the number of shares traded during the specific time period of the chart. The length of the volume bar indicates a value that corresponds to the scale at its right. The color of a volume bar is determined by its corresponding price bar; blue if the most recent trade is equal to or greater than the previous period’s last trade, and magenta if it is less than the previous period’s closing price.
Most traders ignore volume. Big mistake! Big! Huge!
Volume has to be the most underrated market variable used in technical analysis. But if you know how to analyze and interpret it, you’ll be able to see market turning points develop and anticipate pullbacks and trend changes.
You can figure out whether the Professionals are buying or selling by analyzing:
● Volume transacted at the bid or the ask
● High to low range of the bar, and
● Average trade size.
The Better Volume indicator improves on your typical volume histogram by coloring the bars based on 5 criteria:
1. Volume Climax Up – high volume, high range, up bars (red)
2. Volume Climax Down – high volume, high range, down bars (white)
3. High Volume Churn – high volume, low range bars (green, PaintBar blue)
4. Low Volume – low volume bars (yellow)
5. Volume Climax plus High Volume Churn – both the above conditions (magenta)
Here at point 1, we see a huge change in the direction of price, it was proceeding in a downward direction, then suddenly there was a spike in volume over 2 weeks, this is known as a “blow off bottom”.
It indicates that a key price has been found, where the sellers have lost enough that they need to sell the stock, and the buyers have seen the price decrease enough so that they see real value in the Stock. Of course, other factors contribute, like good news or earnings results. Whatever happened, volume increased!
The stock here increases from $20 to $38 in the following 3 months, a 90% increase, but how would we know this was about to happen. Well, buying at the time the moving averages crossover would have been a good option, it would not have provided the full 90%, but it would have produced 40%, which by anyone’s reckoning is an excellent result. However here we see a monster “Blow off Top ”, the huge red Spike, this is a very strong sign, to sell as soon as possible.
From stage 2 we see the stock move in a sideways pattern and eventually decrease back down to $19, the ride is well and truly over. However, you would not own the stock, as you would have sold when the moving averages crossed.
The stock price started to increase in mid-November 2008, but volume tells us nothing.
WHY? Indicators do not tell us something 100% of the time, but when they do we need to recognize it. The moving averages cross at $25, a good time to buy.
Here we see massive buying; the volume goes through the roof. Important to note here is we are comparing volume for the stock in comparison to its history. This is the second biggest volume surge of the year for Netflix and is significant.
Why did it take off? We should always seek enlightenment!
It reported excellent earnings, and because of the recession, people were switching from buying bigger ticket items such as Cars and Plasma TV’s to staying at home and renting Movies. Netflix reported a massive increase in new members.
In the chart, this note shows the price “Gapped Up”. What does this mean? This means that the stock price in extended-hours trading was so strong that the Opening Price on the following day was significantly higher than even the High for the previous day, thus showing a gap in the price pattern in the chart.
Warning: Some volatile stocks show a lot of Gaps in price. While gaps in price might sound good when they gap upwards, if they gap down against you then they are very bad. Avoid stocks with any history of strong negative gapping. As gaps do not give you the opportunity to sell at the price you want to.
So what did we learn?
Volume is important and reading it should become second nature. Especially when searching for winning stocks, we ideally should look for stocks with increased volume so we have more chance of a quicker, less risk win.
Try to stick to trading stocks with at least $1 million traded per day. That means (Stock Price * Volume) = $ Volume Traded. There is another easy way to see if a stock has enough volume. If you see large gaps between the open and closing price for any stock it means there is not enough liquidity in the stock. This means not enough volume.
Penny Stocks often do not have enough volume. For example, if the stock price is $1 and the volume is 5,000 that means only $5000 of stocks is traded in a single day, that is simply not for a fair and equitable market.
There are some important characteristics of volume and price in the marketplace. It is all about the direction of price movement compared to the increases or decreases in volume. In short, it is about Buyers and Sellers.
Price Up–Volume Up (PUVU) Stock Price moves higher on increased volume. This is bullish as it shows us that more participants are interested in selling the stock at higher prices and that most importantly more people are interested in buying the stock at those higher prices. In an uptrend this signals the trend will continue, in a downtrend, this signals a possible correction or change in the trend’s short-term direction to upwards.
Price Up-Volume Down (PUVD) in an uptrend this is very bearish as it suggests that although prices are rising there are fewer participants suggesting people are backing away from the higher prices. This also infers that the trend is weakening. In a downtrend, it suggests a continuance of the downtrend.
Price Down–Volume Up (PDVU) in a downtrend this may signal that a change in trend is likely, as we saw with the “Blow off bottom” there might be a huge selling climax, then the trend adjusts from down to sideways or down to up. In an uptrend, this may indicate a crisis, panic selling or simply when a stock is going out of favor. The pressure is on the sell side and to sell they have to accept lower prices. A strong negative signal!
Price Down–Volume Down (PDVD) in a downtrend this can suggest that the retreat is slowing or beginning to end as there are fewer people interested in buying or selling the stock at these prices. In an uptrend, this may indicate the stock is stopping for breath or due a pullback before continuing on its upward trajectory. Volume tends to trend in the same direction as the price trend, so PDVD also suggests a continuation of the main downtrend, or a pullback and possible continuation of an uptrend.
So you see not only the price but the direction of both price and volume is important. This is where the Price Volume Indicators play an important role.