Technical Analysis, Studies, Indicators:

Selling & Buying Volume

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Patent #: US 7,831,984 B2
MarketVolume®'s technology of displaying and presenting intraday volume and volume based technical indicators is protected by copyright law and patent. Unauthorized distribution or reproduction of proprietary technologies will be prosecuted to the maximum extent possible under the law.
Description: positive and negative money flow, bullish and bearish sentiment, changes in supply demand balance, leading indicators, charting in technical analysis, market timing.

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  • We define Buying Volume as any volume that is generated as an index pushes higher;
  • We define Selling Volume as any volume that is produced as an index moves lower.

As a general rule of thumb, larger than average amounts of volume to the downside (i.e., as the index moves lower) indicate selling pressure whereas larger than average amounts of volume to the upside (i.e., as the index pushes higher) indicate buying pressure. Given significant amounts of buying / selling pressure, an index will typically reverse course and in due course begin to move higher or lower, whatever the case may be.

Consult our JavaVolume charts to determine whether a particular volume event has generated selling volume (volume to the downside) or buying volume (volume to the up-side). We make a wide range of charts and settings available. The most detailed setting is a 2-hour intraday chart with a 5-minute Volume Moving Average (VMA).

When a significant volume surge appears, this is an indication that a large number of shares / contracts are changing hands. Such volume surges reflect a change in market sentiment and frequently presage at least a short-term price reversal.

Chart 1: S&P 500 Selling Buying Volume Chart.

S&P 500 chart - Selling/Buying Volume

In the chart above, buying pressure exceeds selling pressure when the green line crosses above the red line a trend reversal on the index becomes more likely. The same principle applies in reverse when selling volume exceeds buying volume (i.e., when the red line crosses over the green line).

There are clear relationships between price (i.e., index levels) and volume. An index is more likely to change direction when there is an increase in volume, which ultimately affects price movement. For instance, when selling volume has been dominating, an index will tend to react with a push lower. A thorough understanding of price / volume relationships will allow you to trade with more confidence, and help you achieve greater profits.

A very basic trading system that could be built on this knowledge would be to buy on selling volume surges and to sell on buying volume surges (in each case after the volume surges have reached their peaks - index becomes overbought or oversold).

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