Volume refers to the total number of transactions in individual stocks and the broader market indices ETF(ext. SPY QQQ) and is represented by a vertical column in form. The axis value on the left corresponds to the horizontal coordinates of the column, which is the total number of transactions on that day(If the graph is on a daily basis). If the closing price is higher than the opening price, it means that the day stocks have risen, and the volume will be represented with a red solid bar(In green in the U.S. market); otherwise, it is drawn with a green one. MA1, MA2, and MA3 are the 5-day, 10-day, and 20-day moving averages of trading volume respectively.
VO=MA(V,m)-MA(V,n).
In the formula above, V is the volume, and m, n represent days respectively in terms of long-term and short-term moving averages.
An EMA can be added as an indicator in VO shown above to reflect its trend.
3.1 The price rises with the increase in trading volume, which is a normal feature of the market. This positive correlation between volume and price that the stock price will continue to rise.
3.2 The stock price falls, breaking below the pattern, trend, moving averages while volume spikes are a signal that the stock price will continually fall deeply, emphasizing a trend reversal.
3.3 If the stock trend gradually rises with the slowly increasing trading volume, and suddenly the price outburst to the upside while the trading volume increases sharply. Then, the trading volume shrinks sharply, and the stock price drops sharply, indicating that the peak has been achieved. There will be a potential turnaround.
3.4 Volume gently increasing scenario. After the previous downturn in individual stocks' trading volume, there has been a continuous modest increase in volume, which generally proves that strong funds are pouring in. But this does not mean that investors would follow the trend immediately. Once a moderate increase in the volume of individual stocks at the bottom, the stock price will rise with the volume, and the stock price will be adjusted appropriately when the volume shrinks. When it continues for a period of time, the rise in stock prices will gradually accelerate.
3.5 A spike in volume. There may be many situations that got involved with this. If the stock price goes through a long period of time to increase, it usually indicates that the gap between longs and shorts has increased and strong funds have begun to be distributed. The market outlook will hardly continue to rise. However, the huge amount of volume along after a deep decline in price is usually a sign of the last concentrated release of the short side's momentum. The possibility of a continuous deep decline in the future is very small, and the time for a rebound or reversal is near. If the broader market falls as a whole, and individual stocks buck the market overall trend and increase in volume, it usually would be resulting in a very eye-catching effect. Such individual stocks tend to not last long and later will accelerate their decline.
3.6 Trading volume as a pattern. When the trading volume builds a round bottom and the stock price also forms the same, it often indicates that the stock will have a greater chance of rising in the future.
4.1 An indicator automatically adapts and changes according to different cycles, underlying equities, and time environment changes. The complete texture may have dozens of forms.
4.2 Unify the basis of market momentum, and compare markets horizontally.
4.3 Detect the volume changes.
4.4 Observe obvious trend and provide momentum indicators for everyone to sell at the highest point.