Volume Tutorial:
Volume Surge
Classification
Volume surges are evaluated according to their
magnitude and duration. It is vital to appraise each particular volume surge in
this way before attempting to predict how it might impact future market
direction.
A study of volume surges is best performed by
reviewing their magnitude and duration on a variety of timeframes (chart views),
for instance on a 1-day, 15-day, 1-month, 1-year, and even on a 5-year chart.
We categorize volume surges as short-, mid-, or
long-term. We also classify intraday surges:
Intraday Volume Surges: As the name suggests,
intraday surges are volume surges relevant to the activity occurring within
a single session. As a rule, these surges barely register on higher
timeframe charts, such as 5-day charts with a 60-minute VMA. The effect of
intraday surges on larger market trends tends to be minimal. They often
result in a change of just a few index points; however, an analysis of such
surges is particularly beneficial for futures traders who strive to achieve
gains of several points from a number of day trades. In order to correctly
analyze intraday volume surges, it is necessary to study the prevailing
short- and mid-term market trends first, because these tend to dictate the
magnitude of intraday volume surges. That is why we recommend traders
analyze mid- and -short-term trends before attempting intraday scalps.
| Chart #4: |
Examples of
intraday volume surges. S&P 500 index.
May 19, 2005. |
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Short-Term Volume Surges: These are volume surges
that potentially affect market trends over the short-term (i.e., anywhere
from one to several days). Such volume surges typically persist from several
hours up to a day and may induce short-term corrections that can last from
several hours up to several days. An analysis of such surges is possible on
various timeframes, starting with a 1-day period (where 1 bar = 1 minute) and
proceeding up to a 60-day period (where 1 bar = 1 hour). You cannot see mid-
and long-term volume surges on a 1-day chart because such surges are created
through a process of accumulation that spans considerably more than a
one-day period. That is why we recommend checking a short-term surge in
different timeframes to determine whether it is part of a mid- or long-term
volume surge.
| Chart #3: |
Examples of short-term volume surges.
S&P 500 index.
November 19 - 29, 2004. |
 |
Mid-Term Volume Surges: These are volume surges
that potentially affect the market over the mid-term (i.e., from several
weeks to several months). The duration of such surges is usually from one to
several weeks. While you can discern such surges on a 2-year chart, they
tend to be very small on that timeframe. It is therefore best to analyze
mid-term volume surges using a 1-year chart view (where 1 bar = 1 day),
using a 3-day VMA setting. You may also choose a 6-month view (where 1 bar =
1 day) and apply a 1-day VMA setting, or select a 60-day period (where 1 bar =
1 hour) with a 1-day VMA. Mid-term volume pikes are of course visible on
shorter timeframe charts; however, it is best to determine their true size
by placing them in the context of higher timeframes.
| Chart #2: |
Examples of mid-term volume surges.
S&P 500 index.
October 2004 - May 2005. |
 |
Long-Term Volume Surges: These are
volume surges that have the potential to affect market direction over the
long-term (i.e., for up to several years). Accordingly, such volume surges are
substantial enough to figure prominently on 5-year charts (where 1 bar = 6 days)
or on 2-year charts (where 1 bar = 3 days). Volume surge duration may be from
one to several months. Long-term volume surges may also register on 1-year
charts (where 1 bar = 1 day); however, on this timeframe, they will not display
as one large volume surge but rather as a series of smaller surges separated by
phases with low volume. The reason for this pattern is found that there are
always low-volume days, which will be reflected on a one-year chart, because
these charts represent each day as a single bar (in contrast to 2- or 5-year
chart views).
| Chart #1: |
Examples of long-term
volume surges. S&P 500 index.
July-December 2002. |
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In summary: As noted, it
is vital to assess volume surges properly in order to determine their potential
to affect market trends. The best way to do this is to review each surge in
several different timeframes in conjunction with a variety of VMA settings. Of
key importance is also an awareness of the larger market trends (i.e., the
direction of the parent trend). For instance, to assess the potential market
impact of a mid-term volume surge, it is vital to know about the currently
prevailing long-term trend. Accordingly, when analyzing short-term volume
surges, an understanding of the current mid- and long-term market direction
(trends) is just as important.
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