Volume,
Volume Ratio's &
Volume Indicators
In
our last newsletter we talked about
trading with the trend. Once you
have seen your trend, a good confirmation
of the strength of that trend is
through the use of volume studies.
As a trend trader, Dow
theory should be an important
part of your knowledge base. One
of the point Charles Dow emphasized
was that "Volume must confirm
the trend". In saying that,
a major bullish trend, should also
have up trending volume (quantity
of daily volume increases as the
trend continues). Also as the volume
begins to decrease, this gives us
an indication that the trend weakening
and the stock should be watched
more closely. (see Volume)
Another
point which is heavily emphasized
in Dow Theory is that "Trends
exist until their reversals are
confirmed". In the case
of the chart above, we see that
the volume is decreasing as the
price decreases. At this point we
would be waiting for the chart to
enter a side ways trend, and then
wait for a clear uptrend to form.
 |
Watch
out for low volume periods.
These periods typically occur
during sideways moving trends
and indicates uncertainty in
the given stock. It is advisable
to wait for a clear trend move
before making any decision.
|
As
volume often leads price, it is
a valuable indicator, especially
for price peaks and trend changes.
As seen in the chart below, the
volume pattern gives us an indication
of the beginning of the uptrend
as well as the end of the trend.
Volume
Ratio Sample Screen
Using
volume ratio's you can screen for
stocks that have volume spikes.
Possible options are using a 5,20,50,100
day volume ratio.
Recent
spikes are easier to scan for using
a 5 day average, while a growth
in the long term volume trend can
be easier found using 50 or 100
day averages. Also higher ratio
volumes are more common in the 5
day average than in the 100 day
average.
Sample:
In
this example, I have a screened
for all stocks, where the current
close volume is greater or equal
to 1.2 times the average 20 day
volume. I have also included Average
20 day volume and volume so I can
compare the values on the results
screen (It may be necessary to include
a minimum volume, a close range
or choose specific exchanges to
reduce results).
These
type of ratio's work well with technical
indicators as well and can also
be incorporated into your current
screening choices to help refine
and reduce your results list.
When
comparing these values, the ratio's
are within 99.5% accuracy. The reasoning
behind this is because of the large
volume ranges/values, very close
is better than missing some results.
How
the volume ratio is calculated
The
ChartFilter Stock Screeners use
the last point in a SMA and divide
it by the close volume. The last
point in the SMA is calculated by
taking the sum of the total days,
and dividing it by the number of
days used.
Example:
20 day volume ratio ratio
((sum
of last 20 trading days volume /
20) / last reported close volume)
Using
Volume ratio's in the Stock Screener
Click
see volume ratio examples
