Volume Indicators¶

Volume indicators analyze trading volume to confirm price movements, identify trend strength, and detect potential reversals. Volume is often called the "fuel" of price movements - significant price changes on high volume are more reliable than those on low volume.

Overview¶

Volume indicators help traders understand: - Trend Confirmation: High volume validates price trends - Buying/Selling Pressure: Who's in control - bulls or bears - Divergences: When price and volume disagree (warning signal) - Breakout Validation: Real breakouts occur on high volume

Available Volume Indicators¶

Accumulation/Distribution Line (AD)¶

Cumulative indicator that uses volume flow to assess buying/selling pressure.

ad = SQA::TAI.ad(high, low, close, volume)

Key Features: - Cumulative volume-weighted price indicator - Identifies money flow into or out of asset - Useful for divergence analysis

Chaikin A/D Oscillator (ADOSC)¶

Momentum indicator derived from the Accumulation/Distribution Line.

adosc = SQA::TAI.adosc(high, low, close, volume, fast_period: 3, slow_period: 10)

Key Features: - MACD of the A/D Line - Shows momentum of accumulation/distribution - Earlier warning signals than A/D Line

On Balance Volume (OBV)¶

Simple but powerful cumulative volume indicator.

obv = SQA::TAI.obv(close, volume)

Key Features: - Adds volume on up days, subtracts on down days - Leading indicator for price movements - Excellent for divergence detection

Common Usage Patterns¶

Volume Confirmation¶

require 'sqa/tai'

# Load price and volume data
close, volume = load_price_volume('AAPL')

# Calculate volume indicators
obv = SQA::TAI.obv(close, volume)
ad = SQA::TAI.ad(high, low, close, volume)

# Check if price move confirmed by volume
if close.last > close[-2] && obv.last > obv[-2]
  puts "Price rise confirmed by OBV"
end

Divergence Detection¶

require 'sqa/tai'

high, low, close, volume = load_ohlc_volume('MSFT')

# Calculate indicators
obv = SQA::TAI.obv(close, volume)
ad = SQA::TAI.ad(high, low, close, volume)

# Check for bearish divergence
if close.last > close[-10] && obv.last < obv[-10]
  puts "Bearish divergence: Price up but OBV down"
  puts "Potential trend reversal warning"
end

# Check for bullish divergence
if close.last < close[-10] && obv.last > obv[-10]
  puts "Bullish divergence: Price down but OBV up"
  puts "Potential bottom forming"
end

Breakout Validation¶

require 'sqa/tai'

high, low, close, volume = load_ohlc_volume('TSLA')

# Calculate indicators
obv = SQA::TAI.obv(close, volume)
resistance = 250.0  # Key resistance level

# Validate breakout
if close.last > resistance
  obv_momentum = (obv.last - obv[-5]) / obv[-5] * 100

  if obv_momentum > 2.0
    puts "Valid breakout with strong volume confirmation"
    puts "OBV momentum: #{obv_momentum.round(2)}%"
  else
    puts "Breakout on weak volume - may be false"
  end
end

Volume Analysis Best Practices¶

1. Volume Leads Price¶

Volume often changes direction before price. Watch for:

# Volume increasing while price consolidates
# Often signals big move coming

2. Confirm Trends with Volume¶

# Uptrend should have higher volume on up days
# Downtrend should have higher volume on down days
# Decreasing volume in trend = potential reversal

3. Use Multiple Volume Indicators¶

# Combine OBV, AD, and ADOSC for stronger signals
# Agreement between indicators increases reliability

4. Watch for Divergences¶

# Price making new highs but volume declining = bearish
# Price making new lows but volume declining = bullish

Example: Complete Volume Analysis¶

require 'sqa/tai'

# Load data
high, low, close, volume = load_ohlc_volume('NVDA')

# Calculate volume indicators
obv = SQA::TAI.obv(close, volume)
ad = SQA::TAI.ad(high, low, close, volume)
adosc = SQA::TAI.adosc(high, low, close, volume, fast_period: 3, slow_period: 10)

# Calculate price indicators for context
sma_20 = SQA::TAI.sma(close, period: 20)
rsi = SQA::TAI.rsi(close, period: 14)

# Analyze current conditions
puts "Volume Analysis for NVDA"
puts "=" * 50

# Trend analysis
trend = close.last > sma_20.last ? "Uptrend" : "Downtrend"
puts "\nTrend: #{trend}"
puts "Price: $#{close.last.round(2)}"
puts "RSI: #{rsi.last.round(2)}"

# Volume confirmation
obv_change = ((obv.last - obv[-5]) / obv[-5].abs * 100).round(2)
ad_change = ((ad.last - ad[-5]) / ad[-5].abs * 100).round(2)

puts "\nVolume Indicators:"
puts "OBV Change (5 bars): #{obv_change}%"
puts "AD Change (5 bars): #{ad_change}%"
puts "ADOSC: #{adosc.last.round(2)}"

# Signal generation
score = 0
signals = []

# OBV confirmation
if trend == "Uptrend" && obv_change > 0
  score += 2
  signals << "OBV confirms uptrend"
elsif trend == "Downtrend" && obv_change < 0
  score += 2
  signals << "OBV confirms downtrend"
end

# A/D confirmation
if trend == "Uptrend" && ad_change > 0
  score += 2
  signals << "A/D confirms uptrend"
elsif trend == "Downtrend" && ad_change < 0
  score += 2
  signals << "A/D confirms downtrend"
end

# ADOSC momentum
if adosc.last > 0 && adosc.last > adosc[-1]
  score += 1
  signals << "ADOSC positive and rising"
elsif adosc.last < 0 && adosc.last < adosc[-1]
  score += 1
  signals << "ADOSC negative and falling"
end

# Divergence check
price_direction = close.last > close[-10] ? "up" : "down"
obv_direction = obv.last > obv[-10] ? "up" : "down"

if price_direction != obv_direction
  signals << "WARNING: Divergence detected (Price #{price_direction}, OBV #{obv_direction})"
  score -= 2
end

puts "\nSignals:"
signals.each { |s| puts "- #{s}" }

puts "\nOverall Score: #{score}/5"
if score >= 4
  puts "Strong volume confirmation - high confidence"
elsif score >= 2
  puts "Moderate volume confirmation"
else
  puts "Weak or conflicting volume signals"
end

Key Concepts¶

Volume Trends¶

Increasing Volume: Growing interest, trend likely to continue
Decreasing Volume: Waning interest, trend may be exhausting
Volume Spikes: Potential climax or reversal points

Volume and Price Relationships¶

Price up + Volume up: Healthy uptrend
Price up + Volume down: Weak rally, potential reversal
Price down + Volume up: Strong selling pressure
Price down + Volume down: Weak decline, potential bottom

Volume Divergences¶

Bullish: Price lower but volume indicators higher
Bearish: Price higher but volume indicators lower