Interpretation of volume,
like all market indications, is not a precise science. The purpose of
this tool is to provide insight into volume behavior relative to price
that might otherwise be lost. There are two marked up charts, a 3-minute
bar chart and a 532-tick chart, showing various ways the indications
might be interpreted.
THE DYOS FORMULA
The Volume Sum DYO 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 opionion, of best use in this tool.
Dowload Ensign template
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 histo bars. Because the
very next bar was down, the value resets, and a red histo 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.
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.