Volume

• Higher volume on a lower price indicates a bearish signal.
  
• Higher volume on a higher price indicates a bullish signal.
• If the price on a pullback is higher than a previous price with diminishing volume, it indicates bullishness.



Trend Confirmation

• Volume can confirm the current trend. 
• If the price moves up (down) on an increasing volume, the trend is most likely to stay strong.
• If the price moves up (down) on a decreasing volume, momentum is likely to change (we have a saturated market).
• If the volume is steady, the trend is likely to continue.

Trend Continuation

• Strong price moves on a high volume indicate that the market is likely to continue in that direction.
• However, beware that when the market is trending and there is sudden “frenzied” buying and selling, exaggerated price move, into the direction of the trend on strong volume, the trend is likely to be ending.
• If the price jumps up on more than double the average volume, it can be a blow-off move or top meaning that the price is likely to fall (exhaustion move).
• If the price jumps downwards on “panicky” volume, it can be a climax bottom.
• Generally speaking, the first part of a price move, called accumulation, is a result of institutional or professional buying. The public jumps in and accelerates prices up or down until they hit a climax. By that time, professionals are out and the stock may not see those levels again.

Trend Reversal

• Similarly to the case of a continuation, strong price moves on a high volume indicate that the market is likely to continue in that direction.
• If the price has gone through a long price move or trend and it starts to range with little movement but heavy volume, it can indicate a reversal. 
• Volume is usually low in a trading range.

• Monitor volume at trendlines, tops and bottoms.
• If the volume is low as the market approaches a trendline, a breakout is unlikely; a false breakout is more likely instead.
• If the volume is high, then a breakout is likely.
• Do not get involved in a breakout straightaway unless volume is heavy.

• This is the  simplest of volume indicators. It is applied in a similar manner to the price moving average indicator.
• It defines the volume trend.
• It smooths volume fluctuations so a longer period may be more indicative of actual volume surges.
• Spikes in volume indicate that the number of contracts or number of shares is higher than usual, which can signify a trend reversal or a breakout.
• You should always examine this indicator in conjunction with other indicators.

Definition

On Balance Volume, OBV, measures running cumulative trading volume for a particular asset. It ties the volume to price movement. You start on the first day of a time frame, assuming OBV is at zero. If the asset price closes up on a day, that day’s volume is added to OBV. Otherwise. if the asset price closes down on the day, the day’s trading volume is subtracted from OBV. Some brokers provide you with tools that calculate OBV so you do not have to worry about that. It is a leading indicator. Its direction is more important than its absolute magnitude. Keep in mind though that the starting point for calculating OBV is critical. 

How does it work?

• Generally, a new high in OBV is a bullish sign and a new low is a bearish sign.
• If both OBV and price make a new high, then the upward trend is likely to keep going.
• If both OBV and price make a new low, then the downward trend is likely to persist.
• If the price is in a trading range and OBV breaks out to a new high, it is a bullish sign.
• If the price is in a trading range and OBV breaks out to a new low, it is a bearish sign.
• OBV gives the strongest signals when it diverges from the price. A negative divergence occurs when the price makes a new high but the OBV makes a lower high. This is a strong bearish sign.
• A positive divergence occurs when the price makes a new low but the OBV makes a shallower (higher) low. This is a strong bullish sign.

There are three types of accumulation/distribution technical analysis tools that have been created by Williams and Chaikin independently. These three quantities track the relationship between volume and price movements. However, they should not be confused because they use different prices in their formulae.



The Williams Variable Accumulation/Distribution Indicator (WVAD)

Definition

• This indicator determines if there is accumulation or distribution in the market by tracking the relationship between volume and price using the daily trading range, as measured by the high and low, as well as opening and closing prices.
• It should be distinguished from Chaikin’s Accumulation Distribution Line (ADL) and Williams Accumulation/Distribution WAD. A cumulative WVAD indicator is obtained by calculating the running total of daily A/D.

A/D=CLose−OpenHigh−Low.Volume

WVAD=A/D+PreviousWVAD

 Close−OpenHigh−Low acts as a multiplier.

How does it work?

• The multiplier measures how strong the buying or selling pressure has been for the day because it tracks how close the closing price has been to the opening price given the day’s range (as measured by high minus low).
• For example, if the low price for the day is equivalent to the opening price and the asset closes at its high, the multiplier as a percentage for the day will be 100% and A/D will be at its highest possible value for the day -  a clear indication of bullishness.
• Whereas if the asset closes at its opening price, then the percentage for the day will be 0% meaning neither bulls nor bears have won the day.
• Finally, if the asset price closes at below its open price, A/D will be negative - a definite win for bears on that day.

• Note that the presence of the multiplier means that only a fraction of the daily volume will make an impact on the final value.
• Particular attention should be paid to this indicator when the market rises hitting new highs:
• If the price opens high but closes at a lower price (even if it has hit a new high during the day), A/D will turn negative flashing warning signals about the uptrend.
• If A/D turns positive in a downtrend, it can indicate that bulls have started taking over.

• As it is for few other indicators, this indicator gives the strongest signals when it diverges from prices.
• If prices reach a new high but A/D makes a lower peak, it indicates bearish divergence.
• If prices make a new low but A/D makes a shallower (higher) low, it indicates bullish divergence. 

The Williams Accumulation/Distribution Indicator (WAD)

Definition

• This is different from WVAD in that it does not use the opening price, instead opting for True Range.
• Accumulation happens when current close is higher than previous close.
• Distribution occurs when current close is below previous close, in which case A/D will be negative.
• The below step-by-step calculation of this indicator makes this clearer.
• Step I:
• Calculate True Range High (TRH) as the higher value between current high and previous close.
• Calculate True Range Low (TRL) as the lower value between current low and previous close
• Step II:
• If current close > previous close: A/D = (current close – TRL) * Volume
• If current close < previous close: A/D = (current close – TRH) * Volume
• If current close = previous close: A/D = 0
• Step III:

How does it work?

• In general, as the price moves higher or lower, so does WAD indicating accumulation (bullish) or distribution (bearish) respectively.
• WAD gives its strongest signals when it diverges from prices.
• If prices make a new low but WAD makes a higher or shallower low, then this is a bullish signal.
• If prices make a new high but WAD makes a lower high, then this is a bearish signal.

The Chaikin Accumulation/Distribution Line (ADL)

Definition

• This indicator is quite similar to WVAD but ignores the opening price.
• It tracks the relationship between volume and price movements, using high, low and close only.
• In particular, it compares close to the high and low.

A/D=(Close−Low)−(High−Close)High−Low.Volume

ADL=A/D+previousADL

• Accumulation occurs when the close is above the midpoint of the high-low range because this is when A/D is positive.
• Distribution takes place if the price closes at a point below the midpoint of the range meaning that A/D will be negative.

How does it work?

• This indicator gives pretty much the same signals as the previous two.
• If ADL is rising, it indicates a bullish signal.
• If it is declining, it indicates a bearish signal.
• It gives its strongest signals when it diverges from prices.
• If the price makes a new low but ADL rises or makes a shallower low, then look out for a bullish reversal.
• If the price makes a new high but ADL falls or rises to a lower high, look out for a bearish reversal.

Actually, I would like to refresh on trading essentials. Please take me back to the basics! I would like to start from the very beginning.

I am quite comfortable with volume as a trading tool. But I would like to explore other important concepts in trading.

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