Volume Density

27 Sep 2020

Since we don't have tick count per time interval, let's do it this way. Basically "bigger the move bigger the volume" rule applies in most times, making volume alone kinda useless. What is more interesting, is when there was a huge volume within a relatively small range, or vice versa, a huge move without equally increased volume.

Without diving into details, bars with low volatility and serious volume are aprox. areas of possible future reversals/pullbacks, while volumeless high volatility moves should not cause any serious stops in price action.

This is just a small easy script to highlight this process. "Mathematically speaking, it's just a reciprocal of quotient of awfewefaffwqg..... Nah, not this time.

HOW IT WORKS:

Volume Density = 1/(range/volume)

We take range of a bar (high minus low), divide it by volume of the same bar, in order to neutralize this "bigger-bigger" relationship. Then we memorize this number, take 1 and divide 1 by this number, in order to inverse the result. So now, small bars with big volume will be rated higher than just by using classic volume histogram.

I suppose it would be easy to use it along with classic volume histogram, and assess the differences between these 2 histograms.

///
Probs some1 has already posted smth like this before idk, but if it aint the case, here it is, for you.