Bearish versus bullish: these are the core descriptors used to relate the market’s overall behaviour as well as the trajectory of individual securities. Detecting a security’s momentum is not as easy as it might seem on paper, however. The job of the experienced trader is to detect potential upturns —and downswings— in advance of the market’s actual movement. One of the technical indicators that investors use to help them isolate a security’s true momentum is known as the net volume indicator.
The Formula For Calculating The Net Volume Indicator Is As Follows:
What is the Net Volume Indicator?
The net volume indicator is a technical tool used to uncover underlying bearish or bullish behaviour in a security’s momentum. The calculations involved in the net volume indicator are relatively simple compared to some other methods of statistical analysis. To calculate net volume, you must subtract downtick volume from the uptick volume over a given period of time.
Net volume indicator = security uptick volume – security downtick volume
The uptick volume is simply the volume of shares traded as a stock’s price surges upward. Conversely, downtick volume is the volume of shares being traded as the stock’s price falls. (Look at the historical prices of several stocks and trading assets on Tradinview’s charts)
Net Volume Versus Other Momentum Indicators
The net volume indicator is similar to all other momentum-driven analysis tools in that it targets momentum in conjunction with other variables. Other indicators, however, use multiple factors in their analysis. The net volume tool focuses solely on the volume of trades over a user-selected timeframe, free of additional variables.Net Volume Indicator | Indicator Series Click To Tweet
Putting the Net Volume Indicator to Use
The net volume indicator is useful in identifying a security’s positive or negative momentum. The net volume indicator does not look at the absolute values involved, but rather the net values instead. Therefore, a downtick with a volume of 1,000 trades, followed by an uptick with a volume of 5,000 trades would result in a net volume of 4,000, potentially indicating a bullish upswing.
Effective use of net volume can gauge whether a security’s underlying nature is bearish or bullish regardless of its upward or downward trajectory. It is most useful for analyzing the volume and trajectory of a security over a short and finite period of time.
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