Volume Indicators

The Volume indicators confirm the strength of a trend or suggests its weakness. An increasing volume of a security indicates increased interest among traders, while a falling quantity suggests a drop in interest.

Volume, while an important indicator, is not the primary consideration when looking at price action; it should be studied as a secondary confirmation of a trend.

1 On balance Volume (OBV)

OBV measures the amount of volume flowing into and out of a stock. Institutional (or smart) money flowing into a stock will cause OBV to rise.

OBV falls as institutions sell a stock to retail investors with relatively less capital. Higher volume eventually drives a price up and vice versa.

2 Money Flow Index

The MFI uses volume in combination with price to determine whether the stock is in a bullish or a bearish trend. The oscillator generally moves between 20 and 80, with breaches of those levels indicating oversold and overbought conditions. It can also be used to spot divergences which warn of a change in price trend.