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Volume Based Technical Analysis

Volume Averaging


Volume Indicators Quotes

Technical Analysis, volume, averaged volume, NASDAQ 100, charts, intraday, chart, ticks, market, VMA

There two ways to have volume represented on charts. Volume can be displayed as Averaged Volume or as Summed Volume. There is no great difference when it comes to technical indicators that are based on volume, since the average and summed volume have the same trend and the only actual difference between them is the scale in which the volume is measured.

Summed volume is real volume that was traded over a specified period of time. It is the sum of all transactions during the specified period.

In technical analysis, average volume is volume that is adjusted to the shorter period of time - averaged to the shorter period. Averaged and summed volume for 1-minute bars are the same because a 1-minute bar is the smallest available time period. The averaged volume for 2-minutes and longer bars is calculated as a 1-minute average volume.

As an example for a 5-min bar:

Summed volume = Volume1 +Volume2 +Volume3 +Volume4+Volume5

and

Averaged volume = (Volume1 +Volume2 +Volume3 +Volume4+Volume5) / 5

As you see, Averaged volume is longer time-frame volume that is averaged and expressed in one-minute volume ticks. While there is no difference between analysis of average volume and summed volume, some traders may prefer to use average volume due to the "normalized scaling." When you change the timeframe by going to a longer timeframe or going to a shorter timeframe, price remains in the same range, as a rule, no matter what time-frame you use. If the NASDAQ 100 is traded at $1,800, it does not matter whether you monitor 1-day or 60-day or 5-year charts. The NASDAQ 100 index is still at $1,800. Yet, in volume analysis when you look at a 1-day chart (1 bar = 1 minute), you see NASDAQ 100 volume in the 1,200M range per minute. When it comes to a 5-day chart (1 bar = 5 minutes), the summed (real) volume could be 5 times larger. When it comes to a 1-year chart (1 bar = 1 day), you are looking at a volume that could be more than 390 (390 minutes - 6.5 hours - in one trading session) times larger than the 1-minute bar volume. Because of the cumulative characteristic of volume, on a 1-day chart you could be looking at 1,200M volume bars and on a 1-year chart you might be looking at 500,000M volume bars for Summed Volume. However, when averaged volume is used, volume (like price) will remain in a constant range, no matter what timeframe you switch to.

Below are the NASDAQ 100 charts for the same period of time (i.e., for the period of January 11, 2002 to January 14, 2002). The charts are identical, except that the left chart uses Summed Volume and the right chart has Averaged Volume.

Chart #1: NASDAQ 100, 01/11/2002 - 01/14/2002

Summed Volume

 Nasdaq 100
Chart #2: NASDAQ 100, 01/11/2002 - 01/14/2002

Averaged Volume

 Nasdaq 100 chart

You can see that the two NASDAQ 100 charts look the same. Even Volume MA trend is the same. The only difference is the vertical volume scale. In the case of Summed Volume we have 1,027,900, and for the same point Average Volume is 205,500 which is in the range of 1-minute volume bars.

NEXT: Bullish and Bearish Volume

Victor Kalitowski

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