Welcome! You’re here because you read some analysis we published and are a little confused. Don’t worry – here we will explain a little more detail. Volume is used to measure the quantity that a financial asset has traded over a certain period of time. In the simplest terms, this is important because we need volume to be able to trade – without volume, you won’t be able to buy or sell. A financial asset is considered liquid when the volume is high and it is easy to trade. If the volume is low and it is hard to buy or sell it due to the lack of buyers and sellers, then we would call it illiquid.
So how do we use volume to help us make decisions? In the article you read before this, there were a lot of numbers, and we’ll help you out here. Here is a rundown of the volume indicators used in the post you just read.
accumulation-distribution index: First, take the following formula:
This will range from -1 at the start of the day, to +1 at the end of the day. Then to get the accumulation-distribution index, we use the following formula:
This will give a very good indication of how a security closed, and how strong it was when it closed.
on-balance volume: This relates price and volume together.
This value can be positive or negative, and if the price was going up during the day, it would be positive – otherwise, it can easily have a negative value. So look for a positive value here to indicate a strong trend.
Chaikin money flow: Invented by Marc Chaikin, this is usually calculated over a period of 21 days of trading and helps to measure how much accumulation has taken place.
Force index: This helps to measure the power behind a move. Like the Chaikin money flow, it will take price and volume into account. And like with the Chaikin money flow, you want a positive value here. That will indicate a strong trend.
Ease of movement rating: This related an assets price change to its volume.