Technical Analysis - Volume Metrics

Daniel Hawley |

We have covered a number of technical analysis indicators in our blog articles. Today, we are going to look at a volume indicator that measures the quantity of buy orders or volume versus the quantity of sell orders or volume.

One such indicator is "On Balance Volume" which as it's title suggests is measuring a running total of buy and sell volume that translates into a trend line that is moving up or down and can be used to correlate or measure against price. It can also be used to spot trends in price as well as price reversals.

For example, if price is moving up but the "on-balance-volume" is trending down - meaning their is more selling volume than buying volume - this may indicate a potential "price" reversal. The same is true in reverse. If "price" is moving down but the "on balance volume" indicator is trending up this can indicate a potential reversal in price.

Trend reversals - when spotted - can provide good entry and exit points whether for averaging into a position or out of a position over time.

Indicators are best used in conjunction with other indicators to confirm a trend or change in trend. These require experience and understanding of market conditions and potential scenarios where they may be less or more accurate.