Net Volume

🔍 What is Net Volume?

Net Volume is a volume-based indicator that calculates the difference between up volume and down volume over a given period. Rather than looking at total volume alone, it distinguishes buying pressure (volume on up days) from selling pressure (volume on down days), offering a clearer view of the market sentiment behind price moves.

In essence:

• Up Volume = Volume on days when the closing price is higher than the previous close

• Down Volume = Volume on days when the closing price is lower than the previous close

• Net Volume = Up Volume − Down Volume

This makes Net Volume a valuable tool to track the balance between bullish and bearish activity over time.

⚙️ How it Works

The Net Volume indicator works by comparing the volume of trades that occur on up days to those on down days. If more volume happens on up days, the indicator rises, signaling buying strength. If more volume happens on down days, the indicator falls, indicating selling pressure.

Formula:

Net Volume = ∑ (Volume on Up Days - Volume on Down Days)

This cumulative value continues to grow or shrink depending on the dominance of bulls or bears in the market.

📖 How to Read It

• Rising Net Volume: More volume is occurring on up days. This suggests bullish sentiment and a possible continuation of an uptrend.

• Falling Net Volume: More volume on down days. This suggests bearish sentiment and potential weakness in the market.

• Flat or sideways Net Volume: Equilibrium between buyers and sellers. May signal consolidation or market indecision.

Net Volume is often used in conjunction with price charts to confirm trends or detect potential divergences.

⚙️ Best Settings

The Net Volume indicator doesn't typically require adjustable settings, as it calculates directly from raw price and volume data. However, traders may apply smoothing techniques like a moving average over the Net Volume to filter noise.

🧠 How to Use it in a Strategy

1. Trend Confirmation Use Net Volume to confirm whether a price trend is supported by volume:

• If price is rising and Net Volume is also rising → strong uptrend confirmation.

• If price is falling and Net Volume is also falling → strong downtrend confirmation.

2. Divergence Spotting Look for divergence between price and Net Volume:

• If price makes a new high but Net Volume doesn't → weakening momentum, possible reversal.

• If price makes a new low but Net Volume rises → bullish divergence.

3. Volume-Based Entry Timing Use Net Volume as a filter to time entries:

• Only take long trades when Net Volume is positive and rising.

• Avoid short trades if Net Volume shows consistent buying pressure.

⚠️ Common Mistakes

❌ Relying on Net Volume in isolation It’s a confirming indicator, not a standalone signal generator. Always combine it with price action or trend indicators.

❌ Ignoring divergences Many traders overlook divergences between price and volume, missing early reversal signals.

❌ Forcing interpretation in low volume environments In markets with low liquidity, Net Volume may give false or weak signals.

🧠 Final Thoughts

Net Volume offers a unique look into the tug-of-war between buyers and sellers by breaking down volume into bullish and bearish contributions. It is best used as a confirmation and divergence tool, especially when combined with trend-following strategies or other volume indicators like On-Balance Volume (OBV) or the Accumulation/Distribution Line.

While simple, it can be a powerful addition to your trading toolkit — helping you better understand what’s really happening beneath the price.