Volume Analysis

E

-EntropyTrader

Volume validates price. So how does one engage in volume analysis? Looking for some simple and effective strategies.


I use classical TA in addition to MA analysis. Price, Time, and Volume – those are the basics – my analysis usually covers the first two but not volume, and I suspect I’m missing out on something very basic.
 
IMO volume not only validates price, but it dicates price. OBV and VWAP are great indicators of volume bias. When I scan the very first thing I look for are strong volume deviations. I compare closing volume to the 30 day average volume, and I focus on stocks that had large increases or sharp drops in volume. I see volume as the stock heart rate. There are many threads on here that cover volume, I've talked about volume, VWAP, OBV and how I use them in MA as well.
 
Thanks for your replies. I was using an MA on volume, but didn’t find it to be very useful as MAs tend to lag. I’m going to experiment with OBV, A/D, and VWAP now. OBV and A/B supposedly act as leading indicators.
 
Elder’s description of OBV:

OBV is a running total of volume. It rises or falls each day, depending on whether prices close higher or lower than on the previous day. When a stock closes higher…its volume on that day is added to OBV. When a stock closes lower…its volume on that day is subtracted from OBV. OBV often rises before prices-it acts as a leading indicator.
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Anyone have any objections to this indicator?
 
Quote from -EntropyTrader:

Comparing A/D to OBV, A/D seems to provide more depth.
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I have been following the A/D as of late and find it to be much better than OBV in confirming price direction which the different oscillators I use show.
 
Yeah, OBV seems simple mathematically and looks like it trends much better on the one year charts that I usually look at. However, I prefer the additional depth that A/D provides since it accounts for the strength of the day’s direction.
 
Quote from -EntropyTrader:

Volume validates price. So how does one engage in volume analysis? Looking for some simple and effective strategies.


I use classical TA in addition to MA analysis. Price, Time, and Volume – those are the basics – my analysis usually covers the first two but not volume, and I suspect I’m missing out on something very basic.
More...

All I have been using lately is this:

http://www.cyclopstools.com/index.php

You can set the new high/low or breakout filters to screen based on the 3 day avg volume. It has cut the amount of charts I look at on a daily basis by 80%.

I agree with you on volume. I think the majority of price action is random, so if you can use volume analysis as a tool to identify non-random movement I think your chances of success with certain type of trades (breakouts/breakdowns, etc.) is improved significantly.
 
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