Volume Analysis Indicators and Day Trading

By: Manny Backus
One of the most important day trading tips traders should know is that average period volume demonstrates an average conviction of the market. Traders have to know who won the battle of the day – bulls, bears or neutral. If the bulls won the day, the price of the stock typically goes up, which is strengthened by a higher than normal activity motivated by greed. If the bears won the day, the price of the stock typically goes down and also, this position is strengthened by higher than normal activity and motivated by fear.

Traders typically analyze a stock’s price fluctuations in their day trading strategy. They look for things like breakouts and trend reversals, but here’s another element to incorporate – volume analysis. Stock price typically lags behind fluctuations in volume and as a result much information regarding market positioning can be obtained by looking for confirmations in volume.

Volume is a foundational tool in many day trading systems.

Those who are day trading online simply have to look at a stock’s volume and look for days where there is higher than average activity. A review of the stock price on those days will confirm price reversals and help traders determine if it’s the right time to change their market position.

Accumulation distribution current is one of the ways to examine price and volume when day trading stocks. This volume indicator is a great way to filter the information from a trader’s other indicator tools. For example, a trend on a MACD or stochastic may indicate a strength or a weakness for the current price trend, but when these indicators are combined with the volume indicator, the trend may be confirmed or not. The accumulation distribution current is based on the idea that if there is a lot of volume (activity) supporting a particular price move, then the price move becomes more significant.

On Balance Volume (OBV) is another volume indicator used in many day trading strategies. What OBV primarily tells traders is whether the price is moving up or down based on high volume. Basically, OBV takes an arbitrary number and adds to it the total volume of the stock on a particular day. If a stock price goes up, then the volume is added and if the price falls, then the volume is subtracted. Keep in mind that it is still important to review the price of the stock and look for confirmation of the trend. Using OBV, traders are able to review the overall strength of the market during price movements that support the trend that the stock is in.

Volume analysis indicators are great tools that support the technical analyses of other indicators. Traders should also know how the price trend is motivated so they can confirm the strength of their trade position and make any changes if necessary.

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