Chapter 28 · Volume Indicators
Volume indicators
OBV, VWAP, money flow and the A/D line, worked on real tables — plus what the NEPSE floorsheet gives you that most markets do not.
Price up, volume not confirming
Price tells you what was agreed. Volume tells you how much business was done at that agreement. A 4% rise on a tenth of the usual volume and a 4% rise on triple it are the same candle and completely different events.
On-balance volume, worked
The rule is one line: add the day's whole volume if the close is up, subtract it if the close is down, carry the running total.
| Day | Close | Volume | Direction | OBV |
|---|---|---|---|---|
| 1 | 412 | 40,000 | — | 0 |
| 2 | 418 | 65,000 | up | +65,000 |
| 3 | 415 | 30,000 | down | +35,000 |
| 4 | 424 | 90,000 | up | +1,25,000 |
| 5 | 421 | 25,000 | down | +1,00,000 |
Price rose Rs 9 across the week, and OBV rose with it, because the up days carried far more volume than the down days. That is confirmation. Had OBV finished the week at zero while price rose, the advance would have been made on thin participation.
VWAP, worked
Volume-weighted average price uses the typical price of each period, (High + Low + Close) ÷ 3.
| Period | Typical price | Volume | Price × Volume |
|---|---|---|---|
| 1 | 420 | 30,000 | 1,26,00,000 |
| 2 | 418 | 50,000 | 2,09,00,000 |
| 3 | 425 | 20,000 | 85,00,000 |
| Total | — | 1,00,000 | 4,20,00,000 |
VWAP = 4,20,00,000 ÷ 1,00,000 = Rs 420.00. It is the average price everyone who traded actually paid, weighted by size. Institutions are measured against it, which is what makes it a level people defend rather than merely a line.
The rest of the family
| Indicator | Formula | What it adds |
|---|---|---|
| Money Flow Multiplier | ((Close − Low) − (High − Close)) ÷ (High − Low) | Where in the range the close sat, −1 to +1 |
| Money Flow Volume | Multiplier × Volume | That, scaled by size |
| Accumulation / Distribution | Running total of Money Flow Volume | A finer OBV — uses the close's position, not just its direction |
| Chaikin Money Flow | Σ Money Flow Volume(21) ÷ Σ Volume(21) | The same over a window, −1 to +1 |
| Money Flow Index | RSI computed on price × volume | A volume-weighted RSI, 0–100 |
| Force Index | (Close − Previous close) × Volume | Size of the move times the size behind it |
| Ease of Movement | ((High+Low)/2 change) ÷ (Volume ÷ range) | How much volume it took to move the price |
| Volume ROC | (Volume − Volume(n)) ÷ Volume(n) × 100 | Whether participation is rising |
Worked multiplier: high 431, low 405, close 428. ((428 − 405) − (431 − 428)) ÷ 26 = (23 − 3) ÷ 26 = +0.77. Strongly positive — the close finished near the top of the day's range, so the day's volume counts almost entirely as accumulation.
Reading volume without any indicator at all
- Compare volume to that stock's own 20-day average, never to another stock's. A day at 3× its own average means something; 5,00,000 shares means nothing without that context.
- Volume drying up during a pullback is healthy. It says nobody is rushing to sell into the dip.
- A very high volume day that closes in the middle of its range is a fight, not a result. Something changed hands; nothing was settled.
- Volume on the retest matters more than volume on the break. A breakout on heavy volume that retests on light volume is the textbook sequence.
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