Volume Indicators

There two way to have volume represented on charts. Volume could be displayed as Averaged Volume or as Summed Volume. There are no big difference when it comes to the technical indicators based on the volume since average and summed volume have the  trend and the only actual difference between them is the scaling the volume is measured in.

Summed volume is  a real volume that was traded over specified period of time - this is a sum of all transaction over this period of time.

In technical analysis Average volume is volume that is normalized to the smaller period of time - averaged to the smaller period of time. Averaged and summed volume for 1-minute bars is the same because 1-minute bar is the smallest available period of time. The averaged volume for 2-minutes and bigger bar is calculated as 1-minute average volume.

As an example for 5-min bar:

Summed volume = Volume1 +Volume2 +Volume3 +Volume4+Volume5

and

Averaged volume = (Volume1 +Volume2 +Volume3 +Volume4+Volume5) / 5

As you see Averaged volume is higher time-frame volume that is averaged to one-minute volume ticks. While there is no difference between analysis of average volume and summed volume some traders may prefer using average volume due to the "normalized scaling". When you change timeframe by going to higher timeframes or going into lower timeframes, as a rule, price remains in the same range no matter what time-frame you use. If the Nasdaq 100 is traded at $1,800 it does not matter whether you monitor 1-day or 60-day or 5-year chart - the Nasdaq 100 index is still at $1,800. Yet, when it comes to volume analysis when you look at 1-day chart (1 bar = 1 minute) you see volume Nasdaq 100 volume in 1,200M range per minute. When it comes to the 5-day chart (1 bar = 5 minutes) the summed (real) volume could be 5 times bigger and when it comes to 1-year chart (1 bar = 1 day) you are looking at the volume that could be more than 390 (390 minutes - 6.5 hours - in one trading session) times bigger than the 1-minute bar volume. Because of the cumulative characteristic of volume on 1-day chart you could be looking at 1,200M volume bars and on 1-year chart you could be looking at 500,000M volume bars in case of Summed Volume. However when Averaged volume is used no matter what timeframe you switch,  volume (the same as price) will remain in the constant range.

Below you can see the NASDAQ 100 charts during during the same period of time, i.e. for the period of January 11, 2002 to January 14, 2002. The charts are identical with the only difference that the left chart uses Summed Volume, the right chart is with Averaged Volume.

Chart #1: NASDAQ 100, 01/11/2002 - 01/14/2002 Summed Volume

Chart #2: NASDAQ 100, 01/11/2002 - 01/14/2002 Averaged Volume

You may see that the two Nasdaq 100 charts look the same. Even Volume MA trend is the same. The only difference is the vertical volume scale. In the case of Summed Volume we have 1,027,900, and for the same point Average Volume is 205,500 which is in the range of 1-minute volume bars.

NEXT: Bullish and Bearish Volume

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