Volume Summation - Original Template

This article was updated to reflect the extended discussion as published in the May 2005 Ensign Newsletter, and to collect the three versions of VolSum in one place:

Template Description Image (click to view)

VolSum_3.dat Only the yellow highlight is shown on the chart

VolSum_2.dat Highlight plus green/red up/down bars

VolSum_orig.dat Highlight, green/red bars "up"

Each includes the Highlight alert on the chart and each use the same formulation. Only VolSum_3 *does not* have a separate indicator pane.

DISCUSSION

Aside from price itself, volume represents the commitment of traders to take a position. Richard Wyckoff referred to volume as the "cause" and price the "effect", indicating that to him, volume leads price. Over time many indicators have been created to gauge volume strength: Accumulation Distribution, Chaikin Oscillator, Money Flow Index, On Balance Volume, and simple moving averages or rate of change indicators on volume. All have their uses and are worthy of study by the student of volume.

The VolSum indicator was created to provide a quick visual look at volume behavior relative to price that might otherwise be lost. This indicator is also useful on intra-day minute charts, and perhaps surprisingly on constant volume charts. A suggested user-modification for the later is to alternatively experiment using Tick Count rather than Volume. This can be done by a small change on the VolSum DYOS.

Volume Sum tallies volume for a run of UP (or DOWN) bars, draws a histogram of the running total, and resets itself to zero when the run completes. Doji bars (i.e. Close=Open) are counted as part of the run in progress. This means there will be places where the histograms overlaps. This is reasonable as a Doji indicates indecision and the price pressure volume represents could flow either way. Note too that a value axis is not shown. This is by intent, as the relative values and shapes are what are, in my opinion, of best use in this tool. However, when used on larger intraday time frames (e.g. 15-minute), the peak VolSum bars can be used to gauge potential "balance" volume required to absorb the prior buying or selling spree.

The original VolSum has been in use since March 2005, when the original DYOS was provided to the Ensign users in the dacharts.com Quick Tips section. Since then, some additional features have been added, such as intuitive plotting of VolSum and inclusion of a Price Exhaustion indicator developed by Tricky, included at VolSum_2 and VolSum_3 above.

FORMULATION OF SIGNAL
The Volume Sum DYOS keeps a tally of volume for a run of UP (or DOWN) bars, draws a histogram of the running total, and resets itself to zero when the run completes. Doji bars (ie, Close=Open) are counted as part of the run in progress. This means there will be places where the histo overlaps. This is reasonable as a Doji indicates indecision and the volume could go either way. Note too that I have not included a value axis. This is by intent, as the *relative* values and shapes are what are, in my opinion, of best use in this tool.

VolSum_Orig Examples (Original Display)

Shown below are two marked up charts, a 3-minute bar chart and a 532-tick chart, showing various ways the indications might be interpreted.

MINUTE CHARTS
In the 3m chart example shown below, at about the first 13.27, there is a run of 5 up bars, shown by the 5 green histogram bars. Because the very next bar was down, the value resets, and a red histogram bar is painted. I show various divergence instances, but one important value, in my opinion, is in giving structure to the very low volume periods, such as the 11.27-13.27 period indicated, and to the climax-like runs such as the ones at 9.57 and 10.57.

TICK CHARTS
Volume on tick charts is often very uniform, not allowing much room for interpretation. However, as with the minute chart, summing volume reveals structure that might give traders useful information. Here are some examples of how this might be used.

original: 11 Mar 2005

Dowload amgVolSum.dat Ensign template

May 2005: There is an updated version of VolSum that adds a Price Exhaustion alert as well as a volume based moving average based"Volume Shift". If you are only interested in VolSum, just use one of the templates provided above

Template	Description	Image (click to view)
VolSum_3.dat	Only the yellow highlight is shown on the chart
VolSum_2.dat	Highlight plus green/red up/down bars
VolSum_orig.dat	Highlight, green/red bars "up"

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