The Trader's Edge: Unusual Volume Activity Explained with Ready Scanner
-
The "Unusual Volume Activity" indicator is a tool used in trading to identify significant increases in trading volume for a particular financial instrument, such as stocks or options.
Trading volume refers to the total number of shares or contracts traded during a given period. Unusual volume typically occurs when there is an unexpected surge in trading activity, often indicating increased interest or attention from market participants.
Traders and investors pay attention to unusual volume because it can suggest potential changes in market sentiment or the initiation of a new trend. But it is difficult to check each and every stock and we at Definedge have solved this problem.
Before we explain how to find such stocks let's understand the "Unusual Volume Activity" indicator and how traders might use it:
Understanding Unusual Volume:
-
Baseline Volume:
Before identifying unusual volume, traders establish a baseline or average trading volume for a particular asset. This baseline is usually determined over a specified time frame, such as a day, week, or month. -
Detecting Deviations:
Unusual volume is identified when the current trading volume deviates significantly from the established baseline. The magnitude of the deviation is subjective and depends on the trader's chosen parameters.
How to Trade Based on Unusual Volume:
-
Confirmation with Price Movement:
Unusual volume is most meaningful when accompanied by a notable price movement. For example, a significant increase in volume coupled with an upward price movement may signal bullish sentiment. In contrast, the same volume increase with a downward price movement could indicate a bearish sentiment. -
Breakout Confirmation: - Traders often use unusual volume as a breakout confirmation tool. If a stock breaks out of a key resistance level on high volume, it may suggest strong buying interest, reinforcing the likelihood of a sustained uptrend.
-
Contrarian Indicators:
In some cases, extreme levels of unusual volume may be viewed as a contrarian indicator. For instance, a massive surge in volume after a prolonged uptrend could signal exhaustion and the possibility of a reversal. -
Risk Management:
Traders should implement proper risk management strategies when acting on unusual volume signals. Just because the high volume doesn't guarantee a particular price movement and unexpected events can occur. -
Watch for News Catalysts:
Significant news events, earnings releases, or other market-moving information may trigger unusual volume. Traders should be aware of potential catalysts driving the increased activity.
Scanner in Trade Point and Zone
Definedge Zone and TradePoint, traders can access a powerful tool through the OHLC Scanner. This versatile scanner caters to various timeframes such as Intraday, Daily, Monthly, and Weekly charts. The scanner provides a comprehensive view of Open, High, Low, and Close prices over these timeframes, allowing traders to assess price dynamics effectively.
For instance, the 60-minute scanner captures price movements within each hour. Combined with the Unusual Volume Activity indicator, it becomes a potent tool for identifying short to medium-term trading opportunities. Here is the stocklist from the scanner on the candle closed at 10:15 am.
Are you using this scanner? If yes, write your experience in the comment below.
-
-
Can you please mention the name of the scanner in TP and zone? I tried running the "unusual volume" pre-listed scanner in both the places on nifty 200 universe and the results were different. The zone did not return any results and TP gave stocks but the scanner was running for a long time when i ran on nifty 200.
-
TradePoint desktop has a feature oof Auto Refresh while the RZone scanner doesn't. That may be the reason for the difference in the stock list.
