How do you compare volume across different instruments and markets?

1 Volume normalization

One way to compare volume across different instruments and markets is to normalize the volume data, which means adjusting it for factors such as price, time, and trading sessions. For example, you can divide the volume by the price to get the volume in terms of units traded, rather than dollars or other currencies. This can help you compare the relative demand and supply for different instruments, regardless of their price levels. You can also divide the volume by the time period to get the average volume per unit of time, such as hours or minutes. This can help you compare the intensity and momentum of different instruments or markets, regardless of their trading hours or frequency. Another option is to divide the volume by the average volume of a specific trading session, such as the open, the close, or the most active period. This can help you compare the relative strength and weakness of different instruments or markets, regardless of their trading cycles or patterns.

2 Volume indicators

Another way to compare volume across different instruments and markets is to use volume indicators, which are mathematical formulas that transform the volume data into more meaningful and comparable signals. For example, you can use the volume-weighted average price (VWAP), which is the average price of an instrument weighted by the volume traded at each price level. This can help you compare the fair value and trend direction of different instruments, as well as identify support and resistance levels . You can also use the on-balance volume (OBV), which is the cumulative total of volume added or subtracted based on whether the price closes higher or lower than the previous close. This can help you compare the accumulation and distribution of different instruments or markets, as well as confirm or diverge from price movements. Another option is to use the volume oscillator, which is the difference between two moving averages of volume. This can help you compare the expansion and contraction of volume activity of different instruments or markets, as well as detect potential reversals or breakouts.

3 Volume profiles

A third way to compare volume across different instruments and markets is to use volume profiles, which are graphical representations of the volume distribution at different price levels. For example, you can use the volume-at-price (VAP) chart, which shows the horizontal bars of volume at each price level. This can help you compare the supply and demand zones of different instruments or markets, as well as identify high-volume nodes (HVN) and low-volume nodes (LVN) that act as support and resistance levels. You can also use the market profile (MP) chart, which shows the vertical bars of volume at each time interval, along with the letters that represent the trading sessions. This can help you compare the time and price structure of different instruments or markets, as well as identify value areas (VA), point of control (POC), and initial balance (IB) that indicate the market sentiment and behavior. Another option is to use the volume delta (VD) chart, which shows the difference between the buy and sell volume at each price level. This can help you compare the order flow and aggression of different instruments or markets, as well as identify imbalances and divergences that signal potential price movements.

4 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?