Volume Accumulation Study

By Samantha Baltodano

TL;DR:

The Volume Accumulation study calculates volume multiplied by the difference between the close price and the midpoint of the bar's range. This value plot can be used to identify points of divergence and assess trend strength. 

What Is Volume Accumulation Study?

The Volume Accumulation indicator combines volume and a price-weighting that attempts to show the strength of conviction behind a trend. The Volume Accumulation indicator may also prove useful in uncovering divergences. 

The Volume Accumulation is comparable with the On-Balance Volume indicator; however, the latter adds positive volume if the close is higher than the previous close, even if the close is only a penny higher.

Calculation

The Volume Accumulation study calculates volume multiplied by the difference between the close price and the midpoint of the bar's range.

The formula to determine Volume Accumulation is: 

Volume x [Close – (High + Low)/2] 

Volume will be for the day positive if the close price is higher than the midpoint of the high and low prices. 

If the close price is lower than the midpoint of the bar’s range, then volume is negative for the day.

Why Volume Accumulation? 

The logic behind the Volume Accumulation technical indicator is as follows: 

High Volume, Up-Day:

An up-day on high volume is considered bullish, because volume is being transacted at higher prices. 

For example, there is an imbalance of supply and demand – demand is more than supply – therefore price increases. The fact that there is much volume shows that the size of the supply and demand imbalance is large. 

High Volume, Down-Day:

A down-day on high volume is considered bearish, because volume is being transacted at lower prices. 

With an imbalance of supply and demand – there being more supply than demand – prices will go down. Since there is high volume, this is a bearish signal because there were many more stock traders and investors trying to get out of their position and willing to do that by asking for a lesser price.

How to Use the Indicator

A potential use of the Volume Accumulation indicator is to confirm price movements and show divergences between the indicator and prices, signaling a possible reversal in trend. 

A trader might view any increase or decrease in price with little volume with skepticism. 

The Volume Accumulation indicator attempts to expose instances where price is making new highs or lows, but the indicator is failing to confirm those price moves. 

Also, the Volume Accumulation technical indicator attempts to confirm price movements.

Summary

• The Volume Accumulation study calculates volume multiplied by the difference between the close price and the midpoint of the bar's range.
• The Volume Accumulation indicator can be used to assess trend strength and identify trend reversal during times of divergence.
• If price is trending upward and volume is high, this is an indicator for a bullish market. Demand is outweighing supply, so the security is trading at a higher price.
• If the price is trending downward and volume is high, this is a sign of a bearish market. Supply is greater than demand and investors are willing to sell their shares for less money.

Volume Accumulation is just one of many studies that Archaide automates. For a full list of strategies and studies available click here.

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