Intraday Volume Analysis

Many algorithmic trading strategies use volume to verify the accuracy of a signal. For example, when your strategy indicates a breakout, you may want to look for unusually high volume. On the other hand, if you are seeking a congestion area, you may want to look for unusually low volume. This is a basic consideration when using daily charts, as you can often just use a moving average or Bollinger band on volume to determine if the current volume is high or low.

daily volume analysis using a moving average

daily volume analysis using a moving average

Intraday Volume Analysis

Analyzing intraday volume is not as straightforward. Averaging the volume of all intraday candles is not useful because market conditions vary at different times. For example, the Asian, European, and American sessions in a 24-hour market will likely have different volume profiles, so it would not make sense to compare the volume at 2 AM to the volume at 4 PM to determine if the 4 PM volume is exceptionally high or low. Instead, you should compare the 4 PM volume to the average volume at 4 PM to get a meaningful comparison. A simple moving average on volume unfortunately is not time sensitive, thus can not be used for this comparison.

Another important factor that many traders overlook is that the average traded volume also varies depending on the day of the week. For example, the average volume on a Monday might be 15% lower than the average volume on a Wednesday. Therefore, if you compare Wednesday’s volume to the average volume on any day, you may get an incorrect indication.

 

intraday volume profile per weekday

intraday volume profile per weekday

The chart above shows the average volume in dependence of time (GMT+1) and weekday (1=Monday)  for light crude. As you can see the traded volume has quite some variability, so just averaging the complete day would not tell you if the current volume is high or low.

Intraday Volume Analysis Indicator

To address these issues, I developed an indicator that accounts for these points. It averages the volume in a way that only averages times and weekdays that are the same.

For example, if today is Thursday at 2 PM, the indicator will use all Thursday 2 PM candles and calculate the average for this specific time and day of the week. This way, you will get the most accurate average volume for a specific intraday candle and can easily see if the current volume is higher or lower than the average.

 

intraday volume analysis indicator

intraday volume analysis indicator

Volume Analysis Indicator – Tradesignal Equilla code

Coding the Indicator in Tradesignal is quite straight forward and done with a few lines of code. It creates a 2 dimensional timestamp/weekday array and stores all data on the chart in the appropriate cells. Then the average volume for the specific time/weekday is calculated and displayed.

intraday volume analysis indicator code

intraday volume analysis indicator code

Please read the small print before using the indicator and leave a comment / backlink if you convert it to some other software / programming language.