Understanding Daily Volume and Price

The first article in this series lays out an understanding of daily volume and price. This article is from a series I am working on for trading strategies based on volume which I will have on the members site. Volume is the heart of stock market investing. One of the most interesting aspects of Volume is doing a quick daily review to see changes within volume. Investors often ask how they can tell if a stock is under buying or selling pressure daily. When a stock trades, for every seller there is a buyer and vice versa. The price movement in a stock combined with candlesticks is the way in which investors can determine daily buying and/or selling pressure. The close at the day is always marked by a candlestick which also indicates buying and selling pressure in a stock. The volume indicators during the day and at the close of the day are the keys to understanding buying and selling strategies based on volume.

Let’s look at a stock to see the daily buying and selling pressure.

Bank of Nova Scotia Intraday 15 Minute chart

Below is Bank of Nova Scotia Stock from the Toronto Stock Exchange on March 14. The chart is set for 15 minutes. Every 15 minutes a new candlestick is formed. The color of the candlestick reflects whether there was selling or buying pressure on the stock over that 15 minutes. If you change to 1 minute, 30 minutes or whatever time frame, each candlestick will reflect whether there was more buying going on or more selling.

Price Movement

To understand whether buyers or sellers were in charge for any given time frame, volume looks at the price movement over that time period. Therefore the candlestick shown reflects the price movement in the stock for the time period selected.

Price Movement Down – sellers are in charge

Price movement down shows selling pressure and in reflected in a red candlestick or on some systems a black one.

Price Movement Up – buyers are in charge

Price movement up shows buyers were pressuring the stock price and pushing them high and this is reflected by a green candlestick or on some systems a white candlestick.

Price Movement Neutral – Grey Candlestick

Depending on your trading platform, neutral movements where the stock moved perhaps down and up or up and then down reflect that from the beginning of the time period to the end, the price ended up the same. In other words if at the start of the 15 minutes the price was at $60.00 and at the end it was $60.00, then this is a neutral price action and it is marked as such on the chart.

Volume Technical Indicator

The Volume Technical Indicator beneath the chart shows the volume of shares that were traded every 15 minutes. Again green represents more buying pressure as the stock price rose and red indicated selling pressure as the stock price fell. Remember the volume indicator does not represent price action. Instead it is showing the exact number of shares that traded every 15 minutes on the stock.

Intraday Bank Of Nova Scotia Stock March 14 2013Intraday Bank Of Nova Scotia Stock March 14 2013 – 15 minute chart

While the above 15 minute chart represents daily buying and selling pressure intraday every 15 minutes, the End of Day chart tallies up all the above volume and tells us whether price action was more down or up, or in other words whether more investors were selling mood or buying mood.

Bank of Nova Scotia Stock End Of Day Chart for March 14 2013

At the end of the day a candlestick is formed that represents the buying and selling for that day. For example below you can see Bank of Nova Scotia Stock for the end of the day on March 14. This is the same day as the above chart set for 15 minutes. In the chart below we are presented with a green candlestick that is “wide” in the middle. This represents a few things. First the reason it is sort of flat in the middle is because while the candlestick was green, buying pressure was only slightly stronger than selling pressure. In other words of all the shares that changed hands on March 14, there were only slightly more buyers pushing the price higher than those pushing the price lower. We therefore see a green candlestick but the body of the candlestick is quite small. This is called a white spinning top in candlestick terminology.

I have marked on the candlestick a line pointing to the thin line running out of the body of the candlestick. This is referred to as the shadow. There is a bottom and top shadow to this candlestick from March 14. The bottom is referred to as the “tail”. This shadow tells us that the stock fell lower than the previous day’s close and then rose during the day however as the body of the candlestick is small and part way down leaving a “top shadow” this tells us that the price for Bank Of Nova Scotia Stock at the close of the day was lower than the day’s high. In other words the stock did not close at the day’s high for the day.

Volume Technical Indicator

Below the daily chart is the volume indicator. To the right of the bars under the heading that says “Volume” you can see that it reads “Volume: 1.7M”. This means 1.7 million shares were traded on March 14. If you look at the green bar for March 14 you can see that this amount of shares is somewhat near the average when compared against previous days. This bar is green to tell us that during the day the price of the stock was pushed higher. We would therefore say that buyers were “in charge” during much of the day. In other words, when the stock fell buyers stepped in and started to buy the stock. They kept buying the stock during the day and pushed it away from the lows for the day.

BNS Stock March 14 end of dayBank Of Nova Scotia Stock March 14 end of day

Bank Of Nova Scotia Stock March 13

Let’s look at one more day, the previous day, March 13. Once again we can see in the daily 15 minute chart below, the red candlesticks which tell us that price movement was lower. This means there were more investors selling and buyers kept moving lower. Remember that while it is true that for every seller there is a buyer and vice versa, it is price movement that shows who was “in charge”. In other words sellers kept selling shares and buyers kept buying but they KEPT MOVING LOWER in price. The stock therefore fell. In a market panic, these candlesticks in the daily chart will often be quite large as buyers basically flee the falling stock and keep moving lower. The sellers chase the buyers lower and lower which is why the red candlestick is long in length. The candlesticks in the daily chart are not representing volume, they are representing price movement.

Volume Technical Indicator

Below the daily chart is the Volume Technical Indicator. This indicator does NOT represent price but presents volume. The chart is set for 15 minutes so the volume indicator is reflecting the total number of shares that traded hands during each 15 minute period on March 13. The red bars in the volume chart reflect the total number of shares that changed hands and as price movement for that 15 minutes was lower, the bar is red. This is counted as selling volume.

The green bars represents when price movement was climbing and as you can see there are not a lot of green bars on March 13 so the stock was obviously falling throughout much of the day. Buying volume then is shown as a green bar.

Bank Of Nova Scotia Stock March 13 13Bank Of Nova Scotia Stock 15 minute char from March 13 2013

Bank of Nova Scotia Stock End Of Day Chart for March 13 2013

At the close of the day on March 13 the shares are tallied up and the price movement is studied to see whether the price movement was up, down or sideways. The chart below shows the end of day for March 13. For March 13, Bank Of Nova Scotia Stock ended up with a red candlestick. Price movement then was down. We would therefore say that on March 13 2013 there were more investors trying to sell than there were investors interested in buying within Bank Of Nova Scotia Stock.

Once again in the daily chart below we can see the red candlestick for March 13. This tells us there were more investors trying to sell than buyers. Buyers during the day pulled away from sellers and so the candlestick is long and red. This tell us that the selling pressure pushed the price lower. Again there are two shadows, one of the top and a longer one on the bottom. The bottom is called a tail. With a red candlestick it tells us that prices opened up and then fell throughout the day but because of the tail, the price closed off their lows of the day. If the candlestick was “fat” and the entire length that would tell us that prices fell all day and that prices closed at the low for the day. This is often seen in bear markets where selling is strong all day long on a stock.

The top of the candlestick has a small shadow. This tells us that selling started right near the start of the day and prices fell most of the day.

Volume Technical Indicator

Below the chart is the volume indicator. As March 13 was dominated by sellers the volume indicator bar is red. The volume on March 13 was just slightly less than March 14 so the bars are almost the same height.

Bank Of Nova Scotia Stock March 13 2013Bank Of Nova Scotia Stock daily chart showing March 13 2013 highlighted

So now you know how to read the volume indicators and candlesticks during the day and at the end of a day. In upcoming articles I will look at different investing strategies based on what we have learned here about volume and price.