This article presents some of the most significant volume-based indicators in technical analysis. There are short- to long-term indicators for analyzing the volume behavior of particular assets or assessing the broader market.

Why Does Volume Analysis Matter?

Volume analysis matters because volume tends to precede price, but also because volume is capable of determining the strength behind a market move. By combining volume and price, traders can get a complete picture of what is going on. The most important thing when applying a volume indicator is to select the correct timeframes and trading parameters

• Volume tends to precede price
• Volume may confirm strong trends, breakouts, and trend reversals
• Charting formations usually have a confirming volume pattern

 

Table: Volume-Based Indicators presented in this article

(A) Volume-Based Indicators for Analyzing Assets		(B) Broader Market Volume-Based Indicators
A.1 Short to Mid Term	A.2 Longer Term	B1. Short-Term	B3. Longer-Term
(1) Money Flow Index (MFI)	(10) On-Balance Volume (OBV)	(15) Advance/Decline Volume Ratio	(20) Cumulative Volume Index (CVI)
(2) Equivolume	(11) Accumulation/Distribution (A/D)	(16) ARMS (TRIN) Index	(21) Cumulative Volume Delta (CVD)
(3) Chaikin Money Flow (CMF)	(12) Intraday Intensity		(22) Visible Profile Volume Range (VPVR)
(4) Chaikin Oscillator	(13) Negative Volume Index (NVI)	B.2 Shorter to Mid Term
(5) Open Interest	(14) Positive Volume Index (PVI)	(17) Exchange Volume
(6) Demand Index		(18) Upside/Downside Volume Oscillator
(7) Volume Rate of Change (V-ROC)		(19) Up/Down Volume Oscillator
(8) Klinger Oscillator
(9) Percentage Volume Oscillator (PVO)

 

 

(A) Volume-Based Indicators for Analyzing Assets

 

A.1 Short to Mid-Timeframe Volume Indicators

 

 

(1) Money Flow Index (MFI / Oscillator 0-100)

The Money Flow Index (MFI) combines price and volume data to calculate the buying/selling pressure behind advances and declines.

• Confirms the price trend and shows trend divergences
• Can show overbought/oversold market levels (80/20), depending on the price trend

 

(2) Equivolume (Oscillator/Indicator)

An Equivolume chart combines price and volume into a single plot. This plot shows bars of varying height and width.

• Equivolume is an effective tool for identifying price breakouts and trend reversals
• Ignores open and close price
• Less data is visible for longer-term traders due to box width

 

(3) Chaikin Money Flow (CMF)

CMF calculates the accumulation/distribution line (ADL) divided by the corresponding volume. The principle behind the indicator is that more accumulation has taken place nearer to the high, and more distribution nearer to the low.

• The standard CMF period is 21 days
• CMF confirms price trends and shows trend divergences
• CMF generates buy and sell signals on zero-line crossovers

 

(4) Chaikin Oscillator

The Chaikin Oscillator is an oscillator of an indicator. The oscillator applies two EMAs on the accumulation/distribution line (ADL).

• Confirms the price trend and shows trend divergences
• It can help traders anticipate trend reversals (changes in market momentum precede trend reversals)
• The oscillator can generate buy/sell signals on zero-line crossovers

 

(5) Open Interest

Open interest shows the active positions on derivative markets (Options and Futures markets). Meaning the total number of derivative contracts that have not yet been settled.

• Open interest keeps track of open positions, not the total volume traded
• Open interest can provide a reliable picture of a specific contract's liquidity and market interest
• Note, that at times, it may show the magnitude of market speculation, and in this case, should be used as a contrarian indicator

 

(6) Demand Index

The Demand Index uses 20+ columns of data to calculate buying/selling pressure. By combining price and volume in a complex way, it can prove a leading indicator of price action.

• Confirms the price trend and shows trend divergences
• Generates buy/sell signals on zero-line crossovers
• Can prove especially choppy in shorter timeframes

 

(7) Volume Rate of Change (V-ROC)

The volume rate of change is an indicator showing whether or not a volume trend is developing.

• V-ROC measures the strength of volume changes
• The indicator may confirm breakouts by showing a potential change of the direction points
• At times, V-ROC can be a misleading indicator

 

(8) Klinger Oscillator

The Klinger oscillator determines the long-term trend of money flow. However, it is also sensitive to short-term money flow changes.

• The indicator compares the asset’s volume flow with the asset's price movements
• Confirms the price trend and can recognize a potential price reversal (by spotting divergences on the indicator)
• It may generate buy/sell signals on zero-line crossovers

 

(9) Percentage Volume Oscillator (PVO / short-term)

PVO uses the percent difference between two exponential volume MAs to show periods of strong and weak volume.

• Confirms the price trend and identifies trend divergences
• It may prove significantly choppy at certain times and thus less reliable

 

Also

• Volume-Based MAs (5 days short-term to 60 days mid-term)
• Ease of Movement
• Force Index

 

A.2 Longer Time Frame Volume Indicators

 

 

 

(10) On-Balance Volume (OBV)

On Balance Volume accumulates buying and selling pressure by adding volume on up days and subtracting volume on down days. If the price of an asset closes higher than the previous day, this day's volume is considered up-volume.

• OBV provides traders with a quick picture of the longer-term trend
• OBV determines whether an asset is under accumulation or distribution
• 0BV also confirms price trends and can show trend divergences

 

(11) Accumulation/Distribution (A/D)

The indicator uses volume and price to show whether an asset is being accumulated or distributed.

• A/D calculates the cumulative money flow into and out of a financial-traded asset
• A/D confirms price trends and identifies divergences between the asset price and the volume flow

 

(12) Intraday Intensity

The Intraday Intensity combines the asset’s volume with its price to show how intraday highs/lows are following volume compared to the previous day’s closing price.

• It shows money inflows/outflows into or out of an asset based on the asset’s price daily range
• Confirms price trends and recognizes trend divergences

 

(13) Negative Volume Index (NVI)

The Negative Volume Index is a cumulative indicator that tracks volume changes to highlight the capital movements of smart money. The indicator assumes that the movements of smart money need less volume than the movements of retail market participants.

• Highlighting the capital movements of smart money
• Measuring market activity on days when volume decreases compared to the prior day
• Confirming price trends and identifies trend divergences
• NVI is not an effective indicator when applied in markets where there is a lot of high-frequency trading (HFT)

 

(14) Positive Volume Index (PVI)

Contrary to the NVI presented above, the PVI is an indicator based on the positive changes in trading volume highlighting the capital movements of the so-called “dumb money.”

• Highlighting the capital movements of the “dumb money”
• Measuring market activity on days when volume increases compared to the prior day
• Confirming price trends and identifying trend divergences
• PVI is also disturbed by high-frequency trading activity

 

Also

• Volume-based MAs (60-day or longer)
• Volume Accumulation Oscillator
• Volume Price Trend
• Yo-Yo indicator

 

 

 

(B) Broader Market Volume-Based Indicators

 

 

B1. Shorter-Term Broader-Market Indicators

 

(15) Advance/Decline Volume Ratio

The Advance Decline Volume Ratio simply calculates the ratio of volume of all advancing stocks to the volume of all declining stocks.

• Breadth indicator
• Confirms general market trends and pinpoints divergences
• It can be smoothed with an MA for a more proper use

 

(16) ARMS (TRIN) Index

The Arms or else TRIN index compares the AD Ratio (the number of advancing and declining stocks) to the AD volume (advancing and declining volume).

• The ARMS index has an inverse relationship to the market
• It may identify short-term overbought/oversold market levels

 

B.2 Shorter to Mid-Term Broader-Market Indicators

 

(17) Exchange Volume (Shorter to intermediate term use)

Exchange volume refers to the number of shares that change hands during a given day on an organized exchange (NYSE, Nasdaq, etc.).

• For an effective analysis, exchange volume should be combined with price within a historical context
• Exchange volume can evaluate the power and the sustainability of a market movement
• At times, it can confirm long-term market tops/bottoms

 

(18) Upside/Downside Volume Oscillator

The oscillator is based on a plus/minus volume ratio by combining upside and downside volume.

• Assigning a plus value to volume If the asset’s price is rising and a minus value to volume If the asset’s price is falling
• This oscillator shows a general volume direction

 

(19) Up/Down Volume Oscillator (1O-Day)

The oscillator evaluates volume momentum based on two MAs (a shorter and a longer-term). When the oscillator becomes positive, it means that the strength of the short-term volume exceeds the strength of the long-term volume, and that is a positive sign. When the oscillator becomes negative, it is a sign of market weakness.

• Confirms price trends and shows trend divergences
• Provides buy and sell signals on zero-line crossovers

 

B3. Longer-Term Broader-Market Indicators

 

(20) Cumulative Volume Index (CVI)

CVI is a momentum indicator that shows whether net capital flows are moving in or out of the market. It accounts for advances/declines in the broader market.

• Confirms price trends and shows trend divergences
• It may lag at key market turning points

 

(21) Cumulative Volume Delta (CVD)

CVD shows the cumulative volume changes for a specific period based on buy/sell aggressors.

• If the volume delta is above zero, CVD prints a green bar, which means buying pressure exceeds selling pressure
• If the volume delta is below zero, CVD prints a red bar, which means selling pressure exceeds buying pressure
• If CVD is flat, the market is probably in an accumulation, re-accumulation, or distribution phase

More: https://tradingcenter.org/index.php/learn/technical-analysis/350-cvd-volume-based-indicator

 

(22) Visible Profile Volume Range (VPVR)

VPVR creates a histogram on the chart that shows the total volume traded at each price level. This can help traders to recognize the price levels with the largest historical significance.

• VPVR is a handy tool especially when applied in higher timeframes
• VPVR can prove an excellent tool for identifying long-term support/resistance price levels

 

 

■ Volume-Based Indicators

G. Protonotarios for ExpertSignal.com (c)

8th of November 2024

 

Sources:

• “Trader’s Book of Volume” by Mark Leibovit
• TradingCenter.org