Volume in trading is one of the most important tools a trader can have at their disposal. Volume on TradingView comes in many different shapes and forms, from basic to complex. We are going to break down how to read the basic volume on TradingView.
1. What is volume?
The volume in the market, the most basic understanding of the principal is the total combined quantity of shares or contracts traded in a specific asset or securities. There are multiple measures of volume, which are based on different time periods. Daily, hourly, every 5-minutes even! Volume traded can be measured on all assets that have a centralized exchange. Like stocks, bonds, options, futures, and commodities. Excluding Forex, there is no centralized exchange where all volume flows through.
Volume can be found in different areas of charts and platforms, laid out differently as well.
Some of the top ways that volume is displayed:
- Histogram at the bottom of the chart.
- Volume Profile
- Depth of Market
2. What is the volume on TradingView?
Out of the 3 ways to break down volume, mentioned above, there are two specific ways to break down volume using TradingView. The Histogram (usually at the bottom of a chart) and the Volume profile (which we will not focus on in this article). If you want to learn more about TradingView and the volume profile, you can take a look at this article.
Otherwise, the volume mainly used on TradingView is a simple tool. Called simply “volume” available in the TradingView Indicators. The layout to find the tool and the tool itself will look like the following:
This volume histogram that will appear at the bottom of your chart will come in a color and with a moving average that you can readjust. The moving average is there to show you the average volume over the last X amount of days and compare the current volume movement with that average. Usually, a 9-day average works well.
The coloring in the volume is red and green originally, which is not to be confused with the “buy and sell” volume. Rather it is based on the candle associated with that period. If it is a red day the volume bar will show up red, then green for a green day. This can be changed. The reasoning behind this is that there is no “sell volume or buy volume”. For every buyer there is a seller, so the only thing that dictates the size of the candle is how many shares exchanged hands throughout that period.
The final thing that we need to understand is the volume for different time periods. When you change the time frame on your chart the volume will change slightly. It will represent the time period of the candles that you are currently looking at. If you are on a daily chart. The volume will represent the volume for that day. If on a 10-min chart, the volume will represent the volume for the 10-min period you’re looking at and so on.
Take a look at the daily chart below of the SPY. Each volume bar represents the volume for that day. Along with the moving average that guides the volume, you can see when there are days that have greater activity through increased volume versus those that don’t. This is going to be an important concept in the next section.
3. Understanding Volume With Price Movement.
Volume should be understood as the leader of price, price tends to follow volume. The more volume there is in an asset the more it will move. Consider this; if there is a huge buyer in the market, for example, Warren Buffet and he looks to buy $50,000,000 worth of AAPL, there will be someone, well many people on the end of that transaction selling, if he can accumulate that much.
However, the fact that there is aggressive interest to buy and aggressive buying by one large source, or multiple large sources, is taken as “increased demand” in the asset which will propel the price higher. It is not that Warren Buffer saw the price of AAPL climbing and he said “it’s time to buy”, rather he created the demand, and others seeing this movement will then think “alright price is moving DUE to someone buying massive size, it’s time to add” only pushing the price even higher.
The point is, that increased volume will lead to price. No matter the period you are looking at, if there is the increased volume in one direction of the market or the other, that direction is expected to continue until there is a disruption in the market which might turn the tide.
Since the volume will lead the price, we want to take technical analysis into consideration along with how volume reacts at key areas we have dictated through the volume profile.
We would want to compare the volume to a few things.
- The volume itself is new, thicker than it was in the prior sessions.
- The moving average, usually a 9 or 20-day EMA, is used to see what the average volume sits like and if the volume is heavier or lighter than the average.
Let’s take the following two examples into consideration.
The first is in a key resistance point around the 459 area on the SPY where we have a defined ledge on the volume profile that sticks out. We’ve circled the areas we want to focus on with some rectangles on the chart below. We see how the price comes into the resistance point. The trend is clearly to the downside. We’ve experienced a recent rally in the price of the market and the volume is starting to fall off as we get into the resistance point.
Green days are now sub-average on the volume histogram which would suggest that the green days are getting traded less and less. Finally, towards the end of the box we identified on the volume, the red days started to come in on some above-average volume, this starts to dictate the downtrend is solidified.
This next example takes into consideration both the key support and how price reacts from the area along with the rejection of the resistance point after the push back into the key 460 area.
We are in a key support structure and the massive green candle rejection came in on heavy volume. This alone can tell us that the area is going to get defended should price come back into that area. Then there was some heavier volume to the red candles, above the average, and slowly increasing compared to one another. With some sharp buying in the last part before prices managed to pop off the support. That large volume on green worked with the first candle to get prices out of that hole and into the key resistance.
Notice the volume on the latter end of the market rally, starting to really get diminished and pull down, even though there is green day after green day. Until prices get back into the key resistance point where we can see the sell volume start getting thicker than the average as well as increase day in and day out. Compare the red days and the green days. On the red days, we have increased volume traded. On the green days in the market, there is barely any volume traded. That means the sellers come in and trade hard when they take prices over.
This is a bearish sign.
Concluding volume use on TradingView.
As mentioned, there are several ways to use volume on TradingView. The histogram is explained in this article and the volume profile in the following article.
Understanding that volume in the histogram is:
- NOT representative of “buy or sell volume”. Rather the number of shares of contracts traded based on the time period.
- Compared to itself and prior session volume to get a better image of the trend.
- Compared to the moving average to understand the average volume traded vs current volume traded.
Will help you break down how to most effectively use volume on TradingView. If you want to learn even more about this we use volume daily in our futures and options trading rooms, which you should check out!
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The information contained in this post is solely for educational purposes and does not constitute investment advice. The risk of trading in securities markets can be substantial. You should carefully consider if engaging in such activity is suitable for your own financial situation. TRADEPRO AcademyTM is not responsible for any liabilities arising as a result of your market involvement or individual trade activities.