Volume percentage ratio
by Mike Burk
Volume is best used as a confirming indicator for general market trends and, in developing stock
market indicators, I've found a trio of volume calculations that work well in anticipating cycle tops and
bottoms. My basic volume indicator (Figures 1 and 2) is an exponential moving average of total volume
with a 0.04 smoothing constant.
It is plotted on a normal Y scale, that is, high values are the top of the scale. Although I have chosen the
Dow Jones Industrial Average to represent prices in these charts, broader indices such as the New York
Stock Exchange Index or Standard & Poor's 500-stock index give similar results.
The volume indicator usually begins to rise shortly after prices begin to rise and begins to fall shortly
after prices begin to fall. Volume has risen fairly steadily from the first of 1978 (which is as far back as
my data files go) until the peak in August 1987. There was a volume spike at the time of the October
1987 stock market crash, after which volume declined until shortly after November 1988. Since then,
volume has risen with prices.