Understanding volume divergence is something I have tried to understand, all the different concepts on volume, and, for years, those concepts have evaded me. Low volume, high volume, hidden buying, hidden selling, springs, upthrusts, and the lists just goes on and on. Finally, I just took volume off my chart as I did not feel that it was giving me an “edge”.

I would go back and read Wyckoff, only to begin anew and, again, give up. Finally, it hit me — I am probably overcomplicating the concepts. So, again, I revisited the ever elusive volume analysis but this time I threw out everything I knew so I study it with fresh eyes. And, this time, I saw it. In fact, it is so simple, I was left wondering why I could not see it the first time.

Understanding Volume Divergence – Plain And Simple

First, you have to determine if you are in an uptrend or downtrend. This means on the live edge of the market, are you making higher highs and higher lows or lower lows and lower highs or neither? If the answer is neither, then it is simply noise, nothing more (experts call this congestion or consolidation depending on who you talk to).

Uptrend

If price is making higher highs and higher lows, then you simply mark the highs with a vertical line and these are the volume bars you need to pay attention to. Pick the highest volume bar and this is your measuring stick. For each subsequent high, is the volume higher or lower? If lower, then you have divergence. If higher, you have a new measuring stick.

Downtrend

If price is making lower lows and lower highs, then simply mark the lows with a vertical line and these are the volume bars you need to pay attention to. Pick the highest volume bar and this becomes your measuring stick. For each subsequent low, is the volume higher or lower? If lower, then you have divergence. If higher, you have a new measuring stick.

And, how do you use this new found knowledge? So many ways. For example, this morning I was in a Euro short on the 12 minute. I spotted the volume divergence and protected my profits.

understanding volume divergence