Alright! I promise this is not going to be painful. It may look stange and difficult but it is not hard to understand.
You must be thinking, WTF!!
Hold on! I promise not only it is cool but it is also useful. That funky looking chart is called VOLD, or $VOLD (as a symbol) which is an acronym for Volume Difference. It is defined as follows:
The VOLD (also $VOLD) is the difference between the up volume and down volume on the NYSE. i.e. NYSE $UVOL minus $DVOL; the net up volume.
Therefore, to understand VOLD, one must understand UVOL (up volume) and DVOL (down volume), which is simple enough. It is basically just as you expect it. Total up volume of all stocks in NYSE and total down volume of all stocks in the same exchange. More specifically:
UVOL or DVOL are a total of the volume on all stocks that are up or down in price. Up or down is based on the previous session's closing price. The size of the stock's price change is irrelevant. If the stock is up only $.01, then its volume is grouped into the UVOL total. If that stock's price then drops by $.02 it will be down $.01 and the day's volume for that stock will now be grouped with the DVOL total.
If you understand that, rest is fairly simple. Just remember, price has no saying on the chart above, we have separated the price on purpose, so that we get an independent reading on the market just based on the volumes.
Below is the same chart as above of 13 trading days of November so far (today is Nov 18), markets remain closed on Saturdays and Sundays! The general thing you must understand is that, volume moves price. So if $VOLD is up, market is UP. If $VOLD is down, market is DOWN. If $VOLD is flat, market is FLAT. It is as simple as that. Since $VOLD is a net volume difference, on up days, UVOL will be higher that DVOL on every bar (here 15-min bars), and the difference, VOLD will be a GREEN bar. Similarly on down days UVOL will be lower thand DVOL on every bar (here 15-min bars), and the difference, VOLD will be a RED bar. The absolute number is nor important here, just the trend of the bars are important.
Good test is the Big Up day on Nov 9th. Market was up BIG on that day. VOLD printed green after green bars.... with no red bars at all! A perfect up day! Similarly on Nov 12 market of down, but not to the extent of it was up on Nov 9th. That about it. Yes, their relative swing matter. Nov 5 was an up day, but Nov 9th was a bigger up day!
This is just an independent confirmation tool. The way I use it is say I am looking at a short set up on /ES (S&P 500). Say market is below VWAP, and the set up is a go, but I see $VOLD is printing green bars. I hesitate typically, and I do not enter the trade. I wait. While if I see on the same case $VOLD is printing red bar after red bar. Bingo!! I hit a market order short!
Does is work all the time? Hell NO! Nothing does. Most TAs are a continuation pattern. The moment you enter the market, it can turn on a dime and you can be hanging. But it is not about a single trade. It is about many trades and the probability of success. This just helps in improving your odds.
Next time, I will show a real trade using this technique!
Disclaimer: This is NOT professional advice, this is all just my own opinion and experience. I am NOT a Certified Financial Adviser. Consult professionals for any financial, accounting or legal related questions you have.
Charts are created in Tradingview.com, which is a free service.
