Section 3 - Chapter 4 - Introduction to Volume Analysis

Chapter 4 - Introduction to Volume Analysis
Section 3 – Trend Analysis
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Agenda
Define volume
Define open interest
Define the terms related to volume as
discussed in this chapter
Describe how volume provides
information on liquidity and
participation
Describe how volume adds
perspective to price action

Volume Terminology
1. Trading Volume – The total number of shares, contracts, or units traded in a specific
period.
2. Relative Volume (RVOL) – Measures current volume compared to the average
volume over a period. A high RVOL (above 1) indicates unusual trading activity.
3. On-Balance Volume (OBV) – A momentum indicator that adds volume on up days
and subtracts on down days to measure buying and selling pressure.
4. Accumulation & Distribution (A/D) Line – A volume-based indicator that tracks the
flow of money into or out of an asset.
5. Volume-Weighted Average Price (VWAP) – The average price of an asset adjusted
for volume, often used by institutional traders.

Volume Terminology
6. Tick Volume – Measures the number of price changes (ticks) within a
period, used when actual volume data isn't available (e.g., Forex).
7. Buying Volume – Volume of trades executed at the ask price, indicating
buying pressure.
8. Selling Volume – Volume of trades executed at the bid price, indicating
selling pressure.
9. Volume Delta – The difference between buying and selling volume,
helping identify imbalances.
10.Volume Profile – A chart tool that plots volume traded at different price
levels rather than over time.

Volume Terminology
11. Volume Spike – A sudden, abnormal increase in trading volume,
signaling potential breakouts or reversals.
12. Chaikin Money Flow (CMF) – A volume-based oscillator that measures
buying and selling pressure.
13. Market Depth – Shows bid and ask prices along with the volume
available at each price level.
14. Volume Oscillator – The difference between short-term and long-term
volume moving averages, indicating volume trends.
15. Ease of Movement (EOM) – A volume-based indicator that measures
how easily a stock moves up or down.

Volume Terminology
16. Negative Volume Index (NVI) – Focuses on days with lower volume,
assuming smart money moves in low-volume periods.
17. Positive Volume Index (PVI) – Focuses on high-volume days, assuming
retail traders dominate in high-volume conditions.
18. Cumulative Volume Index (CVI) – Measures net inflow/outflow of volume
over time.
19. Money Flow Index (MFI) – A volume-weighted RSI indicator that detects
overbought or oversold conditions.
20. Klinger Volume Oscillator – A volume-based indicator that identifies long-
term trends in money flow.

Volume Terminology
📖 Cheat Sheet for Using Volume in Trading
✅ High Volume Confirms Trends – A price move with strong volume is more
reliable.
✅ Low Volume = Weak or False Moves – Breakouts on low volume may fail.
✅ Look for Volume Spikes – Can indicate trend reversals or major breakouts.
✅ Use VWAP for Intraday Trading – Helps determine fair price levels.
✅ OBV & A/D for Trend Confirmation – Helps see whether volume supports price
movement.
✅ Monitor Buying vs. Selling Volume – Helps assess market sentiment.

Why Volume is Important?
🔍 Interpretations: Why Volume is Important?
1. Confirms Price Action – Rising prices with strong volume suggest strength;
falling prices with high volume suggest weakness.
2. Detects Trend Reversals – Volume spikes near key support/resistance levels
may indicate reversals.
3. Filters Out False Breakouts – If price breaks a key level without strong volume,
it may be a fake move.
4. Helps Identify Liquidity – High-volume assets tend to have lower spreads and
smoother price movements.
5. Guides Institutional Trading – Volume-based indicators like VWAP are
commonly used by big traders.

Importance of Volume in Market Analysis
📌 Key Facts on Volume in Market Analysis
1. Confirms Price Trends – Strong trends are supported by high volume,
while weak trends have low volume.
2. Indicates Market Strength – High volume shows strong interest and
participation in a move.
3. Helps Detect Reversals – Volume spikes at key price levels can signal
upcoming trend changes.
4. Filters False Breakouts – A breakout with low volume is more likely to fail.

Importance of Volume in Market Analysis
📌 Key Facts on Volume in Market Analysis
5. Measures Liquidity – High-volume assets have lower spreads and
less slippage.
6. Volume Leads Price – Unusual volume activity can indicate upcoming
price movements before they happen.
7. Institutional Activity Detection – Large volume movements often
indicate institutional buying or selling.
8. Affects Volatility – Higher volume typically leads to increased volatility
and price action.

Volume in Market Analysis
📖 Cheat Sheet for Using Volume in Market Analysis
✅ High Volume = Strong Move – Price moves backed by high volume are more reliable.
✅ Low Volume = Weak Move – A price move on low volume is less likely to sustain.
✅ Volume Spikes Near Key Levels – Can signal breakouts or reversals.
✅ Breakouts Must Be Supported by Volume – A valid breakout should have significantly higher
volume than the average.
✅ Divergence Between Price & Volume – If price rises but volume declines, the trend may be
losing strength.
✅ Use Volume-Based Indicators – Tools like On-Balance Volume (OBV), VWAP, and Money Flow
Index (MFI) help confirm trends.

🔍 Interpretations: Why Volume Matters?
1. Stronger Confirmation of Trends – If a stock is rising on high volume, it's more
likely to continue.
2. Identifying Potential Reversals – Volume spikes at support or resistance levels
may indicate a change in direction.
3. Better Trade Entries & Exits – Entering on high-volume moves increases the
chance of success.
4. Market Sentiment Indicator – Rising volume in uptrends suggests confidence,
while falling volume in downtrends signals fear.
5. Detects Smart Money Activity – Institutions often accumulate or distribute
positions with high-volume transactions.

Volume Based Trading
📌 Key Takeaways for Volume-Based Trading
✅ High volume confirms trends and breakouts.
✅ Divergence between price & volume signals reversals.
✅ Low volume breakouts are more likely to fail.
✅ Volume spikes can signal trend continuation or reversal.
✅ VWAP is useful for intraday traders to find fair value entries.

Next Chapter 5 – Volume , Open Interest & Price
Section 3 – Trend Analysis
Presented By :

Section 3 - Chapter 4 - Introduction to Volume Analysis

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