For many of you subscribe to the classical trading philosophies of legendary traders like Jesse Livermore and Richard Wyckoff, there is probably no need for me to further emphasize the importance of volume here. Over the years I’ve read many, many trading books, and after reading many of these classical traders’ books, pamphlets, and articles, I realized my current toolset for analyzing volume was insufficient.
Most trading websites tell you to watch for volume surges, and there are many ways of determining when a surge is happening. Some relative volume indicators simply check to see when volume is above its moving average. But these measures are highly inaccurate, especially at certain times of the day. Volume is always going to be higher at the open and the close, and these extremes skew the moving average for the rest of the day, making it basically useless.
What I really needed was a way to see what the average volume was for a given bar at a specific time of day, and then to compare the current volume to that bar’s average to see if there was anything unusual going on. So I set about trying to develop ways of automating my volume analysis as much as possible, and making it abundantly obvious whenever there was a trading anomaly in the works. And that journey led to this set of ThinkScript studies for ThinkOrSwim, which provide an easy, visual way for stock traders to quickly determine if a tradable event is occurring.
How it works:
- A given bar’s volume is averaged over a customizable look-back period (10 days by default).
- The current bar’s volume is compared to its average volume and ranked in relation to that average.
- If the current bar’s volume is below average, it will be dark gray; if it’s above average by certain thresholds it gets brighter, and turns blue at extremely high readings, drawing your immediate attention.
What you get:
- A custom-programmed relative volume indicator that tells you if the current volume is below average, just average, above average, or truly extreme.
- A custom-programmed relative trades indicator that shows you the relative number of trades that are happening — or, said another way, the relative speed at which the tape is scrolling — indicating the amount of interest there is at the current price level.
- A special bonus indicator showing the average shares per trade for the current bar. When you see this number jump you know the big boys have joined the party!
Why you want it:
- Find key turning points on the chart before the move is over. Identify where unusual buying or selling has begun to create a reversal and start building a position early.
- See what the big boys are doing so you can follow in their wake and stay on the right side of the trade!
- Never be fooled by the basic volume graph again. Your typical volume graph can lead you astray and trick you into thinking there is strong commitment behind a move when there really isn’t, or make you miss the moves that do have strong commitment behind them but are often impossible to find without the right tools!
Hi guys, I’m Josiah, and I’m a trader/programmer from the Nashville, TN area. I recently finished up both a bachelor’s and a master’s degree in Computer Information Systems at a local university and have been self-employed since then, trading and developing projects with Ruby on Rails on the side. Since I was already familiar with a certain amount of programming, and had an active interest in trading and investing, learning ThinkScript — the scripting language for the ThinkOrSwim platform — made a lot of sense, and helped me develop a platform configuration that really streamlined my trading workflow.
About the ThinkScripts
These basically came about because I got so frustrated with the limited built-in capabilities in TOS, and standalone subscription services that charge $99+/month. So I decided to learn ThinkScript so I could develop indicators and scans for myself. I still use a lot of these thinkscripts every day while trading.
Email me here or leave a comment below!