Volume Tutorial:
Terminology
Volume Moving Averages (VMA): Every trader is familiar with
moving averages of security prices, perhaps the most frequently used
technical indicator. We simply apply the concept to volume, rather than
to price, and plot Volume Moving Averages (VMA) ranging in duration from
a few minutes to as long as several months.
VMA surges: In our market studies, we are particularly
interested in the appearance of large peaks ("surges") in the VMA -
known as VMA surges - and how an index reacts when they are generated.
VMA surges are indicative of sudden bursts of significant buying or
selling activity.
Bullish VMA Surge: The event of a Volume Surge as the index
is moving higher.
Bearish VMA surge: The event of a Volume Surge as the index is
moving down.
In the absence of distinct volume surges, we still call any volume
that is generated as the index moves higher Buying Volume, and as it
moves lower, Selling Volume.
Our research shows that index values will always react to VMA
Surges (sometimes immediately and sometimes with a delay), and the
greater the magnitude of a surge (or series of surges), the more
pronounced the ensuing reaction.
Chart 1: VMA Surge Example
On the chart above, note the large selling volume
surge
that was generated during the S&P 500's move down and which
pushed the index into oversold stage. Following the
conclusion of the volume surge, note how the index reacted
with an advance of more than 10 points.
More Terminology
On the chart below, note the volume accumulation and volume
surge
during the S&P 500’s move down. Following the
conclusion of the volume accumulation accompanied by volume surge, note how the
index reacted
with an advance of
more than 40 (3%) points.
Chart 2:
Price Reversal and Volume through SBV and MVO
Bullish Volume Accumulation: volume accumulated
during the price move up. It shows how many shares were bought during
up-trend. The bigger accumulation of the Bullish volume (green SBV area)
the stronger index/stock is overbought.
Bearish Volume Accumulation: volume
accumulated during the price move down. It shows how many shares
were sold during down-trend. The bigger accumulation of the Bearish
volume (red SBV area) the stronger index/stock is oversold.
Bullish Volume Surge: The event of a Volume surge as the index is
moving higher, which indicates that a large number of high-priced shares
are being transferred (i.e., distributed) from one group of market
participants to another. Following the surge, which uses up a lot of
buying power, the number of those buyers willing to keep buying at these
high (-inflated) prices becomes exhausted. Buyers are no longer willing
to pay up (i.e., bid up / buy at the ask) - the market has reached a
critical point where it is vulnerable to a trend reversal down.
Bearish Volume Surge: The event of a Volume surge as the index is
moving down, which indicates that a large number of low-priced shares
are being transferred (i.e., distributed) from one group of market
participants to another. Following the surge, which uses up a lot of
selling power, the number of those sellers that are still willing to
"keep giving away" shares at low ("bargain") prices becomes exhausted.
Sellers are no longer willing to dump their shares at the bid - the
market has reached a critical point where it is vulnerable to a trend
reversal up. (plus here buyers move in who are bottom fishing and shorts
start to cover).
SBV Oscillator: proprietary oscillator developed by
MarketVolume® to measure accumulation of
Bullish and Bearish volume (green and red SBV areas) and to show the
current sentiment whether traders are buying (SBV moves up) or selling
(SBV moves down).
MVO Oscillator: proprietary oscillator developed by
MarketVolume® to measure magnitude of
Bullish and Bearish volume surges.
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