Broad Market Sentiment
Volume Flow measures how market’s stock volume flows between defined as ‘advancing volume’ or ‘declining volume’.
Root Abstract Concept:
When the majority of a market’s volume flows in the same direction that Volume Flow will become smooth. When the majority of volume’s flow is random then Volume Flow will be rough.
1.A) Example of Smooth Volume Flow:
1.B) Example of Rough Volume Flow:
Therefore, a smooth line is interpreted as directional trader confidence and a rough line is interpreted as random. It is vital to note that detecting ‘confidence’ is a better predictor of how traders will act than where prices will go.
2) Example of Smooth (Flat) over time from NYSE Stock Volume Flow:
The length of time Volume Flow is smooth increases the magnitude of the confidence level. In example 2 the smoothness or flatness of the NYSE Exchange volume flow indicated the majority of the stock’s volume throughout an entire day flowed in tandem. And the respective security ( In this case $SPY ) was traded up or continued to trend.
3) Example of Rough over time from NYSE Stocks:
Normally distributed (random) markets are expected to produce ranges.
In example 3 the roughness of NYSE stock’s Volume flow showed there was low confidence across the NYSE which generated the expectation that any confident pricing behaviors would fail ( in this example – breaking new highs ).
4) Example of NYSE Stock Volume Flow Positively diverged with SPY
When stock volume flow in the same direction over long periods that gives a good representation of market sentiment. In example 4 you can see the market sentiment positively diverged with a respective security (in this case SPY) which eventually causes the divergence to resolve.
YouTube Clip about the settings: