Upside/Downside Volume: Overview

Measures of Upside/Downside separate the volumes for rising markets from those in falling markets. In essence, the indicator is displaying the new flow of volume into or out of the market. Since the value for the indicator will increase over time as more issues are added to the exchange, traders will have to determine the appropriate extreme rating for the indicator where changes in trend can occur.Since volume is independent of price, it makes a valuable tool for measuring the quality of a price trend.

Overview

• The Upside/Downside Ratio is calculated by dividing the daily volume of advancing stocks on a particular exchange by the daily volume of declining stocks. The NYSE Upside/Downside Ratio, for example, shows the relationship between rising and falling volume on the New York Stock Exchange.
• A U/D Ratio greater than 1 shows there is more volume with rising price stocks than with falling price stocks.
• The Upside/Downside Volume (U/DV) Line is constructed by keeping a running total for the difference between the daily volume in advancing and declining issues.
• Since the indicator starts with an arbitrary number, it is usually wise to choose a relatively large number (five thousand works well).
• A moving average can be constructed from weekly and monthly figures and plotted alongside the U/DV line.
• Normally, the U/DV line will move up and down with the price, and trend lines drawn on the U/DV and price lines will correspond.
• When the U/DV line doesn’t confirm a price move (divergence), a signal is given for a possible trend reversal. For example, upside volume may fail to expand to support increased prices.
• Signals are also provided when the U/DV line crosses its moving average.