ka66: Normalised/Relative Volume

This is an idea taken from a John Bollinger (of Bollinger Bands fame) talk. Instead of showing volume with a moving average overlay, we show volume relative to its moving average:

avgVolume = sma(volume, 10)  // several configurable MAs allowed
relativeVolume =  volume / avgVolume

Now if we get a value of 1, that means the current volume is the same as its historical average. Under 0, less than average, and above zero, greater than its average.

If we get a value like 2, then current volume is twice its average. I hope the implication of this being displayed visually is becoming clearer.

  • We plot this relative volume as columns.
  • We then plot horizontal levels, like 1, 2, 3 to see the magnitude of the current volume relative to its average.
  • Consecutive rising or falling relative volume is shown in the same colour.

I am still exploring volume as trading data point, but we see some ideas from this visual representation:

  • How do volume patterns change across timeframes? Do we get better signals or higher or lower time frames (e.g. big relative volume spikes)
  • Can consecutive rises or falls indicate a big potential move, even though price is just fluctuating.
  • What about a switch from rise to fall.
  • If we get pinbars/spikes with a big relative volume spike, can we then infer more clearly whether buyers or sellers are in control.

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