Volume Indicators Quotes

The basic and the first step in analysis of volume and price relationship is to define volume as Bullish or Bearish volume depending on price direction. The general rule is that the volume to the price downside is considered as Bearish volume and Volume to the price upside is considered as Bullish volume. Respectfully, Volume and VMA (volume moving average) surges during the price decline are defined as Bearish volume surges and volume surges during the price advance are defined as Bullish volume surges.

There are several ways of defining whether volume is bullish or bearish:

• By bar Direction: if current bar close price is above the previous bar close price then volume associated with this price bar is considered as Bullish Volume. Controversy of the close price of the current bar is below the previous bar close price then volume associated with this bar is considered Bearish. This method is mostly used on daily (1 bar = 1 day) and higher timeframes charts.
• By Trend:  The easiest and simplest way to define a trend is to plot moving average on price. If the price moves above moving average then the price is considered to be in Bullish trend and respectfully associated volume is considered as Bullish Volume. If the price moves below its moving average then the price is considered to be in bearish trend and volume during this trend is considered as Bearish Volume. This method is usually used in visual analysis.
• By Price Indicators: There are number of price based technical indicators that are used to define the current trend sentiment. As an example you may have Bullish or Bearish MACD, RSI, Stochastics or other indicators readings. Depending whether indicator readings are bullish or bearish within specified period of time you may define volume in that period of time as bullish or bearish. This method is good for using in mathematical models. For instance we use Stochastics in MVO© (Market Volume Oscillator© developed by our team) to define Bearish and Bullish volume surges.

The charts below are examples of VMA surges to the downside and VMA surges to the upside.

On the first NASDAQ 100 chart the green volume bars are bullish volume and red volume bars are bearish volume.

Chart 1: Nasdaq 100 chart with Bullish and Bearish volume
defined by the price bar direction.

On the second chart the blue volume bars on the red background represent bearish volume because this volume is associated with the price moving below its moving average (brown line).  The volume on the green background is associated with the price moving above its moving average, furthermore, this volume is defined as bullish volume.

Chart 2: Nasdaq 100 chart with Bullish and Bearish volume
defined by price location to its moving average

The thirds chart shows bearish and bullish volume defined by the Stochastics. In particular, volume during the period of time when Stochastics reading were above 80 (bullish Stochastics readings) is considered as Bullish Volume. Respectfully, volume during the period of time when Stochastics was Bearish (Stochastics readings below 20) is defined as Bearish volume.

Chart 3: Nasdaq 100 chart with Bullish and Bearish volume
defined by the Bullish and Bearish Stochastics

Depending on the purpose of the technical analysis a trader may select different ways of classifying volume as bullish or as bearish. For instance in analysis of the money flow a trader may prefer second method when moving average is used to define the trend direction and type of volume associated with this trend. On the other hand in the analysis of volume surges and trader may select second method to define type of volume, especially when the trader would like to know how far from the most recent lows of highs the volume surge occurred.

NEXT: Up/Down Volume

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