Volume Indicators Quotes

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.

There are several ways to decide whether volume is bullish or bearish:

• By bar Direction: if the current bar close price is above the previous bar close price, the volume associated with this price bar is considered to be Bullish Volume. Conversely, if the close price of the current bar is below the previous bar close price, the volume associated with this bar is considered to be Bearish. This method is used mostly on daily (1 bar = 1 day) and longer timeframe charts.
•  By Trend: The easiest and simplest way to define a trend is to plot a moving average of price. If the price moves above the moving average, the price is considered to be in a Bullish trend and thus associated volume is considered to be Bullish Volume. If the price moves below its moving average, then the price is considered to be in a bearish trend and the volume during this trend is considered to be Bearish Volume. This method is normally used in visual analysis.
•  By Price Indicators: There are number of price-based technical indicators that are used to define the current trend mood. For example, you may have a Bullish or Bearish MACD, RSI, Stochastics or other indicator’s reading. Depending on whether the indicator readings are bullish or bearish within a specified period of time, you may define the volume in that period as bullish or bearish. This method is good for use in mathematical models. For instance, we use Stochastics in MVO (Market Volume Oscillator developed by our team) to define Bearish and Bullish volume surges.

The charts below are examples of VMA surges on the downside and VMA surges on the upside.

In the first NASDAQ 100 chart, the green volume bars are bullish volumes and the red volume bars are bearish volumes.

Chart 1: Nasdaq 100 chart with Bullish and Bearish volume
defined by the price bar direction.

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
defined by price location relative to its moving average (brown line)

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
defined by the Bullish and Bearish Stochastics

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