Confirm price moves by following the money.
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Overview
Volume is the number of units traded in a given period, and it is one of the most direct measures of market participation and conviction. The principle of "volume precedes price" reflects the observation that significant institutional activity β which drives major price moves β must involve large transaction volumes.
Key volume analysis concepts include: volume confirmation (a breakout or reversal accompanied by above-average volume is more likely to be genuine), volume divergence (price making new highs on declining volume suggests diminishing buying interest and potential reversal), and volume climaxes (extremely high volume bars after a sustained trend often mark exhaustion and reversal points β known as "selling climaxes" at bottoms and "buying climaxes" at tops).
On-Balance Volume (OBV) accumulates volume on up-days and subtracts it on down-days, creating a running total that acts as a momentum indicator. When OBV diverges from price, it often foreshadows a price reversal. The Money Flow Index (MFI) combines price and volume to create a volume-weighted RSI.
Volume Profile analysis maps volume by price level rather than by time, revealing the "Point of Control" (POC) β the price level with the highest traded volume β which acts as a magnetic anchor for price. High Volume Nodes (HVN) act as support/resistance; Low Volume Nodes (LVN) act as areas of fast price travel.
Strategy Code
This is a TradingView Pine Script example for this indicator. Paste it into the TradingView Pine Editor, add it to your chart, and adjust inputs for your market and timeframe.
//@version=6
strategy("Volume Analysis", overlay=true)
obv = ta.obv(close, volume)
obvEma = ta.ema(obv, 21)
trend = ta.ema(close, 50)This is a thinkorswim ThinkScript example for this indicator. Open thinkorswim, create a custom study, paste the script, and apply it to your chart.
def obv = OnBalanceVolume();
def obvAvg = ExpAverage(obv, 21);
def trend = ExpAverage(close, 50);
def buySignal = obv crosses above obvAvg and close > trend;
def sellSignal = obv crosses below obvAvg or close < trend;Join thousands of traders who use auto-Trading to execute this strategy automatically, 24/7.
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