Downtick Volume

What is Downtick Volume?

Downtick volume is the number of shares of a given security that have traded at a price lower than the promptly going before transaction price. Downtick volume is utilized to express the amount of activity in the market.

Everything that Downtick Volume Says to You

Downtick volume is an indicator analysts and traders use to figure out current movement inside a resource's price. At the point when a transaction happens at a higher price than the previous transaction, that is a uptick. At the point when a transaction happens at a lower prior price than the previous transaction, that is a downtick. By extension, downtick volume is the number of shares or contracts that change hands on the downtick.

Downtick volume can be calculated aggregately over the course of the day. Or on the other hand it very well may be calculated across a number of stocks — subsequently showing whether selling interest is far reaching across a number of stocks, or whether the strong (or weak) selling is isolated to a specific stock.

Volume can likewise be checked out (on any time period) to survey whether there was increased or diminished volume during that period. On the off chance that the price drops over a period, on higher than prior volume, that shows increased sell power happened. Assuming the price drop happens on lower than average volume, that shows the selling may not be powerful, yet sadly prices can keep on falling even on low volume.

Downtick Volume as a Market Indicator

A common indicator that compares upticking stocks to downticking stocks is the Tick Index. The indicator makes a ratio of the number of stocks on the NYSE that are making upticks versus downticks.

The ratio is viewed as extreme when it surpasses or +1,000 or - 1,000. In the event that the tick hits - 1,000 watch for a reversal. There has been a great deal of selling that could before long debilitate itself. Short-term traders will watch their charts for a likely go to the upside. All things considered, there is no guarantee the price will turn soon, or for how long.

Traders can likewise look for the downticks to begin. Whenever the Tick Index begins moving down demonstrates that more stocks are starting to see downticks (selling). This could be utilized as a short-term indicator to exit long positions or enter short positions.

The Tick Index is one illustration of how downticks can incorporated into a trading strategy. The Arms Index (TRIN) is fairly comparative and takes a gander at the number of stocks that are progressing versus declining, and on how much volume. Since this indicator consolidates volume, it is much of the time utilized related to the Tick Index.

Difference Between a Downtick and a Tick

A downtick is the point at which a transaction happens at a lower price than the prior transaction price. A tick is the littlest movement that a price can make, in one or the other heading. Be that as it may, a downtick isn't limited to just moving one tick. Transactions could be wide separated, addressing many ticks of movement.

Instance of Using Downtick Volume

The following chart shows a 1-minute chart of Meta (META), formerly Facebook. It doesn't show tick data, as most use traders use time periods of one-minute or higher for examining charts, rather than checking each and every transaction out.

The chart shows an overall downtrend, yet by taking a gander at price and volume a trader might notice the intensity level of the selling. Given that the overall price movement was down, the volume will in general get as the price sells off. This pattern rehashed several times over the course of the day. This doesn't be guaranteed to give trade signals all by itself, yet may assist a trader with affirming trade signals in view of different strategies, and note the overall bearishness of the day.

Limitations of Using Downtick Volume, and Uptick Volume

Downtick and uptick volume is an exceptionally short-term measure of price movement strength. It shows what happens transaction-by-transaction, and in this manner can be very flighty as an indicator.

The data is historical. It lets us know a transaction happened, or aggregately shows us what has occurred, yet except if quite certain patterns are found in the data, having this data may not be guaranteed to lead to knowing when is a great opportunity to buy or sell. Like any indicator, it depends on the trader to beneficially utilize.

Downtick volume is best utilized related to different forms of technical analysis. For instance in the event that the price is in a downtrend, downtick volume and the Tick Index and Arms Index might be useful in sticking with a short trade until there is evidence that the stock or the stock market, as a whole, is losing momentum to the downside. As the price action and these indicators begin to offer positive hints, affirming one another, then, at that point, it very well might be really smart to get long.

Highlights

• High volume on downticks demonstrates a strong longing for traders to sell.
• Downtick volume is the number of shares or contracts that change hands at a price lower than the prior transaction price.
• Downtick volume gives knowledge into the intensity of selling pressure.