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Volume Based Technical AnalysisBullish and Bearish Volume and VMA's (Volume Moving Averages)![]() Technical Analysis, VMA, volume, volume moving average,
chart, upside, downside, moving average, volume MA, MA, Stochastics, Nasdaq
100, chart, bullish, bearish
The basic and first step in your analysis of the volume and price
relationship is to define volume as Bullish or Bearish volume, depending on the
price direction. The general rule is that volume
on the price downside is considered to be Bearish volume and Volume on the price
upside is considered to be Bullish volume. Accordingly, Volume and VMA (volume
moving average) surges during a price decline are defined as Bearish volume
surges and volume surges during a price advance are defined as Bullish volume
surges.
The charts below are examples of VMA surges on the downside and VMA surges on
the upside. Chart 1: Nasdaq 100 chart with
Bullish and Bearish volume
On the second chart the blue volume bars on the red background represent bearish volume because this volume is associated with the price moving below its moving average (Bullish trend). The volume on the green background is associated with the price moving above its moving average (Bearish trend). This volume is defined as bullish volume. Chart 2: Nasdaq 100 chart with
Bullish and Bearish volume The third chart shows bearish and bullish volume defined by the Stochastics. In particular, the volume during the period of time when the Stochastics reading were above 80 (bullish Stochastics readings) is considered to be Bullish Volume. Similarly, the volume during the period of time when the Stochastics were Bearish (Stochastics readings below 20) is defined as Bearish volume. Chart 3: Nasdaq 100 chart with
Bullish and Bearish volume Depending on the purpose of the technical analysis, a trader may select different ways of classifying volume as bullish or as bearish. For instance, in analyzing the money flow, a trader may prefer the second method in which a moving average is used to define the trend direction and type of volume associated with the trend. On the other hand, in analyzing volume surges, a trader may select the third method to define the type of volume, especially when the trader would like to know how far from the most recent lows or highs the volume surge occurred. NEXT:
Up/Down Volume
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