Volume indicators: VWAP, on-balance volume, volume profile
Volume is the only common input that is not derived from price. That makes it genuinely independent — and easy to misread.
Almost every indicator on a chart is a rearrangement of open, high, low, and close. Volume is the exception. It is a separate measurement, which is why volume-based tools can add something that a fifth momentum oscillator cannot.
VWAP
Volume Weighted Average Price is the average price paid across a session, weighted by how much traded at each price:
It is normally anchored to the session open and resets each day. Institutional desks are frequently measured against VWAP on execution quality, which is the honest reason it gets watched: a lot of participants care about it for reasons unrelated to prediction.
Two properties worth knowing. It is cumulative, so it becomes progressively less responsive as the session goes on. And because it resets, its value early in a session is computed from very little data and moves erratically.
On-balance volume
A running total that adds the bar's volume when the close is higher than the previous close and subtracts it when lower:
The absolute value is meaningless — it depends entirely on when the calculation started. Only the slope carries information. And note the crudeness: a bar that closes up by one tick counts its entire volume as positive, exactly like a bar that closed up two percent.
Volume profile
Rather than plotting volume against time, volume profile plots it against price — how much traded at each level over a chosen window. It produces a horizontal histogram beside the chart.
- Point of control — the price level with the most volume in the window
- Value area — the band containing a set share of total volume, commonly 70 percent
- Low-volume nodes — levels where little traded
The common reading is that heavily traded levels represent agreement and thin levels represent areas price moved through quickly. That is a description of what happened. Whether those levels matter again is the inference, and it is yours to make.
An important caveat for equities. US equity volume is fragmented across many venues, and what your platform reports depends on which feed you subscribe to. Two traders can see materially different volume on the same stock. Futures volume is centralised at the exchange, so it is far more consistent — a real reason volume analysis is on firmer ground in futures than in stocks.