Volume Analysis
Volume Spread Analysis, OBV, VWAP, Chaikin Money Flow, and volume-based trading strategies for reading institutional intent.
Overview
Volume is the fuel that drives price. Volume analysis tools go beyond simple volume bars to reveal whether institutional participants are accumulating or distributing, whether breakouts are genuine or likely to fail, and where fair-value price levels sit. From classic Volume Spread Analysis to modern VWAP strategies, these tools provide an essential edge in understanding market dynamics.
Topics Covered
Volume Spread Analysis (VSA)
Volume Spread Analysis examines the relationship between price spread (the range of a candle), closing position within that spread, and the accompanying volume to determine the intentions of institutional market participants. Developed from the work of Richard Wyckoff and refined by Tom Williams, VSA identifies accumulation, distribution, and supply/demand imbalances by reading the story that volume and price action tell together.
On-Balance Volume (OBV)
On-Balance Volume is a cumulative volume indicator that adds volume on up days and subtracts it on down days, creating a running total that reveals whether volume is flowing into or out of an asset. Developed by Joe Granville, OBV often leads price — a rising OBV during a consolidation suggests accumulation, while a falling OBV during a hold signals distribution. The direction of OBV matters more than its absolute value.
Accumulation/Distribution Line
The Accumulation/Distribution Line measures the cumulative flow of money into and out of an asset by examining where price closes within its range relative to volume. Unlike OBV, which only considers whether the close is up or down, the A/D Line weights volume by the close's position within the bar's range, giving a more nuanced picture of buying and selling pressure.
VWAP Strategies
Volume Weighted Average Price (VWAP) represents the average price an asset has traded at throughout the session, weighted by volume. It serves as a dynamic intraday fair-value benchmark used by institutional traders to gauge execution quality. For retail traders, VWAP acts as a powerful support/resistance level and trend filter — price above VWAP suggests bullish intraday bias, while price below suggests bearish bias.
Chaikin Money Flow
Chaikin Money Flow (CMF) measures the accumulation or distribution of an asset over a specified period by combining price and volume data. It oscillates between -1 and +1, with positive values indicating buying pressure and negative values indicating selling pressure. CMF differs from other volume indicators by incorporating both the close location within the bar and the volume, then averaging the result over a lookback period.
Money Flow Index (MFI)
The Money Flow Index is a volume-weighted RSI that measures buying and selling pressure by incorporating both price and volume data. It oscillates between 0 and 100, with readings above 80 considered overbought and below 20 considered oversold. Because it includes volume, MFI often provides earlier reversal signals than standard RSI, making it particularly effective for identifying exhaustion moves.