Karma Trades

What is it?

It's a momentum indicator that tracks the relationship between volume and price. It is often considered a leading indicator because it shows when a stock is being accumulated or distributed, foreshadowing major price moves. Again, volume precedes price.

How is it calculated?

The indicator has a three step calculation:

How to use it?

This indicator is mainly used to confirm trends or spot potencial trend weakness & reversal when there is a divergence with the price trend.

























Unlike the OBV, the Accum/Dist Line takes into account each individual period, giving it a different value based on if it cloed near its highs or near its lows. This means that a slightly red hammer day, won't affect the line the same way as a long red candle would, thus allowing to track the volume more accuratetly than the OBV.

What is it?

The On Balance Volume indicator or OBV, is an indicator that focuses on the importance of volume and how it can affect a give prince and asset's momentum. OBV is based on the idea tha volume precedes price, so if a security is seein an increasing OBV it is a signal that volume is increasing during the upward price moves; when it decreases, it means the opposite, volume is increasing on the down days. 

How is it calculated?

The OBV is simply a running total of positive and negative volume during any given period.

If the closing price is above the prior close price then: 
Current OBV = Previous OBV + Current Volume

If the closing price is below the prior close price then: 
Current OBV = Previous OBV  -  Current Volume

If the closing prices equals the prior close price then:
Current OBV = Previous OBV (no change)

How to use it?

The value of the OBV line is not important, what it's important is the characteristics of the line. Firstly, the most important is the trend, this will help us find out in which direction the volume is flowing.
























If we are following a trend, we would like to see the OBV moving in the same direction of the trend. That means that the trend is being supported by volume.


Another use of the OBV is to look for divergencies. When the OBV stops going higher or even begins to trend downwards while a security price is still going up, that is s sign that the existing trend is weakening and may reverse.



An example of a bullish divergence. Notice how the OBV started to trend up before the price did.


The on-balance volume measure is one of the least complex volume indicators that try to measure price and volume together. While there are more complex indicators, it is the ease of understanding and use that make this volume indicator so popular.

What is it?

Volume is a very simple indicator but also a very powerful one if used correctly. It is a measure of how many shares of contracts of any given financial asset has been trader in a given period of time.

How is it calculated?

Volume is just a count for al the shares that were traded that day. If a buyer of a stock purchases 100 shares from a seller, then the volume for that period increases by 100 shares based on that transaction.

How to use it?

Volume is usually seen as an histogram at the bottom of a price chart. Each bar represents the volume of each period.

Volume is used to measure the worth of a market move. If the markets have made strong price move either up or down the perceived strength of that move depends on the volume for that period. The higher the volume during that price move the more significant the move.

Volume in Trends 

In a rising market volume should be also increasing. This means that the market is finding new buyers to sustain the trend. Increasing price and decreasing volume show lack of interest and this is a warning of a potential reversal. 





















This can be hard to wrap your mind around, but the simple fact is that a price drop (or rise) on little volume is not a strong signal. A price drop (or rise) on large volume is a stronger signal that something in the stock has fundamentally changed.


Exhaustion Moves and Volume

In a rising or falling market we can see exhaustion moves. These are generally sharp moves in price combined with also a sharp increase in volume. Exhaustion moves usually signal the potencial end of a trend.





















Participants who waited and are afraid of missing more of the move pile in at market tops, exhausting the number of buyers. At a market bottom, falling prices eventually force out large numbers of traders, resulting in volatility and increased volume.

Volume and Price Reversals

After a long price move higher or lower, if price begins to range with little price movement and heavy volume, often it indicates a reversal.


Volume and Breakouts Vs. False Breakouts

On the initial breakout from a range or other chart pattern, a rise in volume indicates strength in the move. Little change in volume or declining volume on a breakout indicates lack of interest and a higher probability for a false breakout.



Volume Indicators
 
There are many volume-based indicators that add other perpectives about how to interpret volume. I'll cover those in further posts.