What Is a Price by Volume Chart (PBV)?
A price by volume (PBV) chart is a horizontal histogram plotted on a security's chart showing the volume of shares traded at a specific price level. Often times, price by volume histograms are found on the Y-axis and are used by technical traders to predict areas of support and resistance.
Also, known as volume by price charts.
Understanding a Price by Volume Chart (PBV)
Price by volume charts are used to illustrate high buying and selling interest at specific price levels, which can be indicative of support and resistance in a given security. It's common to see the price of a security face little resistance when traveling between levels that have small PBV bars, but the price may experience difficulty moving above or below areas with large PBV bars. Some price by volume charts also delineate the difference between buying and selling volume by shading sections green or red. These insights can be especially useful for characterizing price points as either heavy resistance or heavy support levels rather than generic levels.
It's important to note that price by volume charts show total volume at certain price levels over a period of time. This means the support and resistance levels may be outdated looking into the future. For example, if a stock experienced a bad quarter and a severe sell-off ensued, there may have been a very high level of volume on one day, but that may not be entirely relevant as a support level moving forward. At the same time, the support and resistance levels are more important looking forward than looking into the past since it has been summed over the entire timeframe.
Often times, price by volume charts are used in conjunction with other forms of technical analysis to maximize the odds of success, including both chart patterns and technical indicators. For example, a trader may use trendlines to confirm the presence of support or resistance instead of exclusively rely on volume bars to show these pivot points.
Price by Volume Chart Example
The following chart shows an example of the SPDR S&P 500 ETF (NYSE ARCA: SPY).
In the chart above, you can see that most volume over the period has been between two price points. These price points served as key areas of support and resistance towards the end of the period with the rebound in early-May. However, it's worth noting that most of these levels were generated during early February when the fund witnessed the highest volume.
Chart courtesy of StockCharts.com.