What is Uptick Volume
Uptick volume refers to the volume of shares traded while a stock price is rising. It’s one of many indicators used by investors to make buy and sell decisions.
Breaking Down Uptick Volume
Uptick volume is used in trading strategies focused mostly on chart trends and less on company fundamentals. Investors are looking for the beginning signs of significant momentum shifts upward, called uptick volume, as well as downward shifts, called downtick volume. Uptick volume measures the volume of shares traded while the stock price is going up. Downtick measures momentum heading downwards in a stock price, correlated with volume.
Investors look for uptick volumes as evidence a stock is in the early stages of a significant move upwards. Stock prices typically find bands of resistance when both the upward and downward momentum is thwarted, making no clear trend or movement evident. Breaking upward from this resistance zone is referred to as uptick volume.
Investors will look at the uptick/downtick indicator when determining whether to buy, sell or short a particular stock. Investors can look at large blocks of stock traded through publicly available data and determine whether the stock is ticking up or down. This trading technique is a subset of the overall investor interest in money flows. Money flow calculates the average high, low and closing price of a stock, multiplied by the daily volume. Investors will compare that daily data to previous data in seeing whether the money flow trend is positive or negative.
Other trading indicators such as the Accumulation Area and The Joseph Effect are useful in determining stock price and volume momentum. Seasoned investors will use several models simultaneously to help avoid the pitfalls of false signals that oftentimes present themselves in a single model due to other activities occurring outside of that particular model.
Technical Analysis Versus Fundamental Analysis
Uptick volume is a subset of technical analysis, which is the theory of using charts to see movements and patterns in stock prices and volumes over time. Technical analysis is less concerned with the actual fundamentals of a particular stock and more with the movements indicating buy and sell opportunities. Fundamental stock analysis is of course very important for anyone looking to buy and hold a solid company for many years. Fundamental analysis looks at a company’s vital health statistics such as cash flow, product pipeline and management track record. Fundamental analysis can be of less interest to day traders and others getting in and out of stocks quickly through their reliance on technical analysis to make money.