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What Is Net Volume?
Let me explain what net volume is: it's a technical indicator you calculate by subtracting a security's uptick volume from its downtick volume over a specified period. Unlike regular volume, this one actually differentiates if the market sentiment is tilting bullish or bearish. You'll typically see net volume plotted right below the price chart, with bars showing the net volume for each period.
Understanding Net Volume
As a trader, you use net volume to get a better read on market sentiment than what standard volume offers. If you see positive net volume, that means the security is in a bullish upswing; negative net volume points to a bearish downswing.
Take this example: imagine a thinly traded stock with five downward trades, each at 200 shares, dropping the price by five percent total, and then one big upward trade at 10,000 shares that pushes it up three percent. The stock closes two percent lower, but your net volume comes out positive at 9,000, which tells you the underlying momentum is actually bullish.
You can look at charts to visualize this—there's often an image showing net volume bars under the price action, like the one from Investopedia that illustrates how it tracks with price movements.
I recommend using net volume alongside other technical analysis tools, such as indicators and chart patterns, when you're hunting for opportunities. For instance, if a stock breaks out from a key resistance level, check the net volume to see the buying pressure and if the momentum will hold.
Comparing Net Volume
Net volume is like other momentum indicators that factor in volume, but it zeros in exclusively on volume over a single timeframe, unlike those that incorporate more variables.
Compare it to the money flow index: both measure interest in a security, but MFI uses price and volume for buying and selling pressure, not just volume. It's also similar to on-balance volume, which accumulates volume on up and down days over time, rather than isolating a single period. Then there are indicators like the relative strength index that focus on the size of gains or losses for insights.
In practice, many traders opt for those more complex indicators over net volume, but it still has its place when you need to analyze just one period specifically.
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