Volume analysis sometimes goes into the background, this is a big mistake because as Charles Dow said volumes have to confirm the trend, especially the importance of volume delta.
Experienced traders use platforms to control the ongoing fight between buyers and sellers to figure out where, when and if to enter market. It takes little to make mistakes, unfortunately over the years I have learned about my operation that even the slightest detail or a simple distraction change the outcome of the trading day.
Why is the volume delta important? Because it tells us on trading book the volumes that hit letter Ask (uptrend) and those of the Bid (downtrend), this way you get the difference between the volumes on purchase and on sale called volume delta.
It is a great indicator that can be used with different timeframes to do intraday trading on stocks, index, futures then each of us has his own methodology in the set up of the chart. Volume delta on the trading platform, you find it represented in the shape of a red candle if sellers are prevailing, green in the case of buyers but the most important fact is whether we are in a Risk on or Risk off market.
Less experienced traders often make the wrong choice because if, for example, the volume delta tells me that buyers exceed the number of sellers I will have to put it uptrend on the downside. If on the chart neither buyers nor sellers have market control we are in a balanced situation, volume delta will be there to show us.
On an operational and emotional level if you do not know what to do is better to wait, even experienced traders fall into traps especially in neutral situations precisely because we are in a waiting phase where the market does not always give directional information.
When the “pause” moment ends, the battle starts again and the value of the volume delta returns dynamic and updates with the trend of the traded contracts. Summarizing:
- Delta volume – buyer’s domain
- Delta descending volume – seller domain
- Delta neutral volume – neither buyers nor sellers have the domain
- In the event of upside or downside gap the delta volume will have a strong impact on the market
- Delta volume helps you avoid being on the wrong market side – reduce the % of loss