{"id":10973,"date":"2024-10-12T00:04:43","date_gmt":"2024-10-12T00:04:43","guid":{"rendered":"https:\/\/businesstriumphs.com\/index.php\/2024\/10\/12\/the-one-volume-indicator-you-should-follow\/"},"modified":"2024-10-12T00:04:43","modified_gmt":"2024-10-12T00:04:43","slug":"the-one-volume-indicator-you-should-follow","status":"publish","type":"post","link":"https:\/\/businesstriumphs.com\/index.php\/2024\/10\/12\/the-one-volume-indicator-you-should-follow\/","title":{"rendered":"The One Volume Indicator You Should Follow"},"content":{"rendered":"
\n

I was asked recently about volume, specifically why I don\u2019t feature volume often on my daily market recap show, CHART THIS with David Keller, CMT<\/a>.\u00a0 I replied that when I was learning the technical analysis toolkit earlier in my career, I very much paid attention to volume indicators.<\/span><\/p>\n

But in the years to follow, I developed a process that focused more on trend and momentum, and I felt the approach worked quite well despite the lack of volume inputs.\u00a0 But there is one indicator that has been fairly successful at recognizing market turns over the last year, and it\u2019s a chart I will be following closely in the weeks to come.<\/p>\n

Volume to Chaikin Money Flow<\/h2>\n

First, let\u2019s talk about how we measure volume over time.\u00a0 The easiest way to represent volume is with the daily volume bars, helping us determine if today\u2019s volume is above or below average.\u00a0 And while that can be helpful for navigating the short-term environment, it doesn\u2019t help us assess how volume is evolving over time.<\/p>\n

Famous strategist Joe Granville developed the concept of \u201cOn Balance Volume\u201d where he created a cumulative total of volume by adding up days\u2019 volume and subtracting down days\u2019 volume.\u00a0 Similar to an advance-decline line, it does help to indicate the general directional trend in volume.<\/p>\n

The issue here is that we\u2019re taking an entire day\u2019s volume and considering it all bullish or all bearish, depending on whether the close was higher than yesterday.\u00a0 What about if we finished at the high or the low of the day.\u00a0 Shouldn\u2019t that matter in some way?<\/p>\n

An Advance-Decline Line for Volume<\/h2>\n

Another legendary technician, Marc Chaikin, improved on Granville\u2019s work by looking at every day\u2019s price bar.\u00a0 If the close was closer to the high, then that day\u2019s volume should be worth more in the running total.\u00a0 And if the close was near the middle of the range, that day\u2019s volume should be worth less in the calculation.<\/p>\n

Now we can see the running total of daily volume, but with more value given to the days with highs near the high or low for the day.\u00a0 So big up days and down days become much more important when we consider the overall trend in volume.<\/p>\n<\/p>\n

When the indicator is above zero it\u2019s shaded green, and long-term uptrends often feature extended periods of green.\u00a0 When the indicator is below zero, represented with the red shading, this suggests a period of distribution as the down volume appears heavier.<\/p>\n

Watching for Volume Divergences<\/h2>\n

While crossing below the zero line would represent a general rotation in volume from more accumulation to distribution, the real benefit of this indicator is in the early warning sign based on divergence.<\/p>\n

As the market was moving higher in July 2023 into the eventual August high, we saw a decline in the Chaikin Money Flow.\u00a0 We observed a similar pattern in March 2024, as the SPY pushed higher even as the CMF was trending lower, as well as in July 2024.<\/p>\n

Notice how the current reading shows the Chaikin Money Flow reading as still quite strong for the S&P 500?\u00a0 This suggests that the market is still in a position of strength, given the stronger bullish volume in recent weeks.\u00a0 But this chart also tells us to keep a wary eye on the CMF in the coming weeks.\u00a0 Because a bearish divergence here could provide an early warning sign to mindful investors staying attuned to the rhythm of the markets.<\/p>\n

Heads up!\u00a0 We just launched our new podcast, Market Misbehavior with David Keller, CMT<\/a>, in October!\u00a0 Check out our recent interviews with Mark Newton, Joe Rabil, Mish Schneider, and Mike Livingston.\u00a0 Lots more great conversations coming your way very soon!<\/span><\/p>\n

<\/div>\n<\/p>\n

RR#6,<\/p>\n

Dave<\/p>\n

PS- Ready to upgrade your investment process?\u00a0 Check out my free behavioral investing course<\/a>!<\/span><\/p>\n

David Keller, CMT<\/p>\n

President and Chief Strategist<\/p>\n

Sierra Alpha Research LLC<\/p>\n

Disclaimer: This blog is for educational purposes only and should not be construed as financial advice.\u00a0 The ideas and strategies should never be used without first assessing your own personal and financial situation, or without consulting a financial professional.\u00a0\u00a0<\/em><\/p>\n

The author does not have a position in mentioned securities at the time of publication.\u00a0 \u00a0 Any opinions expressed herein are solely those of the author and do not in any way represent the views or opinions of any other person or entity.<\/em><\/p>\n<\/div>\n","protected":false},"excerpt":{"rendered":"

I was asked recently about volume, specifically why I don\u2019t feature volume often on my daily market recap show, CHART THIS with David Keller, CMT.\u00a0 I replied that when I was learning the technical analysis toolkit earlier in my career, I very much paid attention to volume indicators. But in the years to follow, I […]<\/p>\n","protected":false},"author":0,"featured_media":10974,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[2],"tags":[],"class_list":["post-10973","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-stock"],"_links":{"self":[{"href":"https:\/\/businesstriumphs.com\/index.php\/wp-json\/wp\/v2\/posts\/10973","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/businesstriumphs.com\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/businesstriumphs.com\/index.php\/wp-json\/wp\/v2\/types\/post"}],"replies":[{"embeddable":true,"href":"https:\/\/businesstriumphs.com\/index.php\/wp-json\/wp\/v2\/comments?post=10973"}],"version-history":[{"count":0,"href":"https:\/\/businesstriumphs.com\/index.php\/wp-json\/wp\/v2\/posts\/10973\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/businesstriumphs.com\/index.php\/wp-json\/wp\/v2\/media\/10974"}],"wp:attachment":[{"href":"https:\/\/businesstriumphs.com\/index.php\/wp-json\/wp\/v2\/media?parent=10973"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/businesstriumphs.com\/index.php\/wp-json\/wp\/v2\/categories?post=10973"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/businesstriumphs.com\/index.php\/wp-json\/wp\/v2\/tags?post=10973"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}