Market Internals: Volume

26. Aug. 2024

The indicator plots the total volume of the NYSE and NASDAQ exchanges and identifies periods with significant asymmetry between Up Volume and Down Volume. It can be used as an additional tool to confirm broad market sentiment.

Chart shows Total Volume (TVOL) bars for SPY daily chart. Green bars for UVOL>>DVOL, Red for DVOL>>UVOL. Neutral bars are gray. Blue line shows median TVOL.

Rationale:
Up Volume (UVOL) and Down Volume (DVOL) represent the total volume of stocks that have increased or decreased in price, respectively, compared to the previous session's closing price. The magnitude of the price change is irrelevant.
When UVOL is significantly higher than DVOL, it indicates a prevailing buying sentiment in the broad market. Conversely, when DVOL is higher, it signals prevailing selling sentiment.
Occasionally, the UVOL/DVOL (VOLD) ratio may be misaligned with the movement of the S&P index. The picture below illustrates an example of a day when the S&P declined, yet the UVOL was twice larger than DVOL. Such a divergence can suggest that the S&P was pulled down by a decline in a few large-cap stocks, while the broader market remained positive. In this case, the divergence led to a continuation of the rally.

Thus, VOLD, when combined with volume analysis, can be an effective tool for confirming market trends.

Parameters:
VOLD Ratio – minimum ratio of UVOL/DVOL or DVOL/UVOL. Indicator will color code volume columns when condition is true (“green” means buying; “red” selling).
Median Length – number of periods to calculate median TVOL.
Show Divergencies – indicator marks divergencies between price and volume sentiments on the main chart. Only works for SPY chart.
Users can also choose which exchanges (NASDAQ/NYSE) to use for volume calculation.

Notes:

• Volume is shown in millions of contracts
  
• Indicator should be used on the daily or higher timeframes. It won't work properly on the intraday charts
  

Disclaimer
This indicator should not be used as a standalone tool to make trading decisions but only in conjunction with other technical analysis methods.

27. Aug. 2024

Versionshinweise

UPD 1.1: Added intraday view. On the intraday chart indicator shows daily cummulative TVOL. Median volume is replaced by the Average Volume at Time (blue line).

30. Aug. 2024

Versionshinweise

UPD 1.2: in the intraday view it is now possible to switch between cummulative and periodic volume (TVOL)