Volume Underlay Indicator Basics Guideline, Strategy

Volume Underlay

The Volume Underlay indicator mainly shows the total volume as a bar chart beneath each of the chart’s periods. Unlike all other indicators that display in a sub-window, the Volume Underlay indicator displays within the actual chart. Before step into the main discussion regarding the specific indicator let’s just have some quick idea about the volume.

What is Volume?

During a particular period of time, the total number of transacted shares are represented by the Volume. Buying and selling of a share are considered as one transaction. For example, if in a day, ten transactions happen, then the volume of the day is ten.

The volume as an Indicator

The volume plays a significant role as an indicator. In technical analysis, the volume helps to find out the relative worth in a market. Generally, the higher the volume, the higher the market movement. Sometimes, divergence may occur between price and volume, in that case, market trend reversal happens.

Popular Volume Underlay Indicator FAQ

What is volume underlay?

As we know that traders use volume in their charts to quantify trading activity in the market. The volume underlay is basically a volume bar chart. This chart can be placed beneath each asset’s price section. In other words, it displays in a sub-window, within the actual chart. Technical analysts use this to analyze the market buy-sell performance.

What is buy volume and sell volume?

We know that volume is the number of contracts, shares or any other financial assets that change hands over a certain time period. Generally, buying volume is the number of contracts that exchange at the ask or offer price. Oppositely, selling volume is the number of contract exchanges at the bid price.

What is volume analysis?

Volume analysis is an important concept of technical analysis. This is the analysis of the number of traded shares or contracts of security in a specific period of time. By analyzing it, investors can determine the importance of changes in an asset’s price.

What do red and green volume bars mean?

There are two types of volume bars in the Volume underlying chart, red and green. These two colors represent two different moods of the market. Basically, a green volume bar represents buyers’ demand while a red bar is the sellers’ demand. There are other analyzations of these two bars also. We will describe them latter.

What does high volume trading indicate?

By analyzing the volume, we can extract a lot of details. Like high volume in any stock is appropriate for short term or intraday trading. So generally, good tradable stocks have high volume. Oppositely, low volume indicates there is less number of stocks traded in exchange.

How to Use Volume Underlay Indicator on Charts?

If the traders are want to get more details regarding the Volume Underlay indicator, then please open the STUDIES section of Zerodha Kite. The traders are also visiting in Kite mobile App. The Up Volume color is green and the Down Volume color is brown. If you want to change these colors then you can change it. The traders can also check the attaching process of the Volume Underlay indicator to the Reliance Industries share price chart. This indicator is available includes daily, weekly, monthly or intraday.

Volume Underlay Indicator

In order to clarify the topic in more detail, we’ve decided to provide examples on the Volume Underlay Indicator from different trading platforms. Here, a chart, derived from Upstox is attached below:

Volume Underlay Indicator Basics Guideline

On this chart, have a look at the volume. There the red colored volume represents down-volume while the green one represents up-volume. The volume underlay indicator is equal to the total volume during trading.

Some Basic Key Points on the Volume Underlay Indicator

  • When prices are rising, the volume should also be rising. This indicates that more bulls are entering the market and market momentum is strong.
  • When prices are falling, the converse is not exactly true. Volume can be falling or steady. Typically, market participants are less active in bear markets.
  • Volume can confirm or deny a reversal or breakout condition. If the market registers a one-day reversal on high volume, the change in market trend is likely.

How to Trade with the Volume Underlay Indicator?

Look at the chart below, thereafter a prolonged downtrend, a long bullish candle along with a breakthrough volume bar appear. I took a buy from that position. Then look, the market gave 2 chances to exit from the trade with long bearish bars. This is a 15 min BPCL chart.

The next strategy I am going to explain is breakout strategy. Here, I have taken TATASTEEL 15 minutes chart. As you can see in the picture below, with a big volume bar, a bullish candle appears and break the previous range. With the breakout, a reverse of past patterns happen and the price moved upwards.

Volume underlay indicator breakout

The example below is accurate for showing a spike. Unusually large volume graphed on a bar chart consider as a spike. In order to locate volume spikes, one need to compare a single day’s volume to its average volume. So, suppose one day’s volume is two, three or more than three times the average volume, it considers as a spike. Unusual large volume often foreshadows a major change in the current price trend. As you can see in the picture below that with the volume spike, the market moved long term downward direction.

Conclusion

So, the volume is simply the number of shares, contracts, or units changing hands in a given period (day, week, hour). It is reported in real-time (or delayed) with each trade. Markets that do not have trade-by-trade reported volume substitute daily summary data or trade count data. Trending markets should be accompanied by rising volume. Exhausted markets are usually accompanied by falling volume or unusually high volume spikes.

Author: Ankita Sarkar

Ankita is a graduate in English language and she has also done her MBA from the Calcutta University. She has a high knack in the stock markets. She is a NISM certified Research Analyst. An experienced stock market content writer Ankita is also trading successfully on her own account.

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