Uptick Volume

What Is Uptick Volume?

The term uptick volume refers to the volume of shares traded while a stock price rises. It is one of many indicators used by investors to make buy and sell decisions.

Uptick volume is commonly used by traders who engage in technical analysis — the theory of using charts to see movements and patterns in stock prices and volumes over time. It is used to determine a stock's net volume — the measurement of its momentum — by subtracting the uptick volume from the downtick volume.

Understanding Uptick Volume

Trading volume is an excellent indicator of how volatility there is in the market. Uptick volume is used in trading strategies by investors who are focused primarily on chart trends instead of those who follow company fundamentals. These investors look for the initial signs of significant momentum shifts upward — the uptick volume — as well as downward shifts, which are called downtick volume.

Uptick volume measures the volume of shares traded while the stock price rises. Downtick measures momentum heading downwards in a stock price, correlated with volume.

Investors look for uptick volume as evidence that 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.

Technical analysts and investors 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 use that daily data to compare it to previous data in seeing whether the money flow trend is positive or negative.

Investors can use a stock's net value — the difference between the uptick and downtick volumes — to determine whether there's a bullish or bearish trend in the market.

Uptick Volume vs. Downtick Volume vs. Net Volume

As mentioned above, uptick volume indicates whether a stock will trend upward. By contrast, downtick volume outlines when a stock price will reverse and drop. Just like uptick volume, downtick volume is used by analysts and investors to understand market movement while predicting where it will go in the future.

Essentially, the term downtick volume refers to the total number of shares traded at a price that is lower than the price it traded at immediately before. This metric is often used to help make predictions about whether and when the market will reverse its course.

When used together, uptick and downtick volumes calculate a stock's net volume — the resulting difference between the two. The net volume is the technical indicator that helps investors determine whether there's a bullish or bearish trend. If the difference between the uptick and downtick volumes is positive, the net volume is bullish. By contrast, a negative result means a bearish course.

Special Considerations

As noted earlier, uptick volume is a subset of technical analysis. This is the theory that investors employ when 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.

On the other hand, fundamental stock analysis is, of course, very important for anyone who wants 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.

Other trading indicators such as the Accumulation Area and the Joseph Effect help determine the stock price and volume momentum. Seasoned investors typically use several models simultaneously to help avoid the pitfalls of false signals that often present themselves in a single model due to other activities occurring outside of that particular model.