Volume: the second dimension

By the end of this lesson

What volume can and cannot tell you
OBV, up/down volume ratio and dry-up — the three measures worth computing
Delivery percentage, the Indian-market data most people never look at

The one thing

Volume has no direction of its own. It measures how much of the market participated in a price move — and it is therefore always a statement about the reliability of the price move, never about which way the next one goes.

The four combinations

Price and volume, read together

Rising
Volume: Rising
Reading: Healthy advance — demand is being met by real participation
Rising
Volume: Falling
Reading: Advance on thinning interest. Fragile; often retraced.
Falling
Volume: Rising
Reading: Genuine liquidation — supply is being pressed
Falling
Volume: Falling
Reading: Ordinary pullback. Sellers are not committed — often constructive.

Price	Volume	Reading
Rising	Rising	Healthy advance — demand is being met by real participation
Rising	Falling	Advance on thinning interest. Fragile; often retraced.
Falling	Rising	Genuine liquidation — supply is being pressed
Falling	Falling	Ordinary pullback. Sellers are not committed — often constructive.

The fourth row is worth internalising. A decline on shrinking volume inside an uptrend is the ordinary shape of a pullback: nobody is rushing for the exit, price is drifting because buyers stepped back rather than because sellers arrived.

Three measures worth actually computing

1. Up/down volume ratio

U/D ratio = Σ volume on up-close days ÷ Σ volume on down-close days

Computed over a base or a defined window. Above ~1.35 means buyers carried materially more volume than sellers while price went nowhere — the clearest single discriminator between accumulation and distribution inside a range. Below ~0.9 says the opposite. This is one of the core inputs to the accumulation scanner on this site.

2. On-balance volume (OBV)

OBV = running total: + volume when close > prior close, − volume when close < prior close

The level of OBV is meaningless; its direction relative to price is the point. OBV rising while price moves sideways means net buying is happening without the price being marked up — someone is absorbing supply quietly. OBV falling under a flat price is the mirror.

3. Volume dry-up

Dry-up ratio = average volume of the last quarter of a base ÷ average volume of its first quarter

Below ~0.75 is constructive: as a base matures, sellers exhaust and volume contracts. A base that stays noisy right to the end usually still has supply overhead.

Worked exampleThe volume signature of a real base

A 14-week sideways range. Price alone says nothing. The volume measures say a great deal.

Price range across the base: ₹276 – ₹31815% deep, flat
Up-day volume ÷ down-day volume: 1.62
Heaviest-volume days closing up: 7 of 9
OBV over the base: rising steadily
Late-base volume ÷ early-base volume: 0.61

Price: went nowhere for 14 weeks.

Volume: up days carried 1.62× the volume of down days,

the heaviest days were overwhelmingly green,

OBV rose while price stayed flat,

and total activity fell 39% as the base matured.

Interpretation: supply is being absorbed by a buyer who is not

in a hurry, and the sellers are running out.

So → This is what accumulation looks like numerically, before any breakout exists to see. The Wyckoff module explains the behaviour behind it; this lesson is how you measure it.

Delivery percentage — the Indian-market extra

Indian exchanges publish something most markets do not: what share of the day's traded volume was actually taken to delivery rather than squared off intraday. It is a direct measure of how much of the activity represented positions taken rather than churn.

Reading delivery percentage

Below 30%
Interpretation: Predominantly intraday churn — the volume represents little real position-taking
40–60%
Interpretation: Normal for most liquid large caps
Above 70%, with a volume spike
Interpretation: Strong signal — heavy participation, and it was carried overnight
Falling sharply on a breakout day
Interpretation: The breakout was traded, not invested in — follow-through is less likely

Delivery %	Interpretation
Below 30%	Predominantly intraday churn — the volume represents little real position-taking
40–60%	Normal for most liquid large caps
Above 70%, with a volume spike	Strong signal — heavy participation, and it was carried overnight
Falling sharply on a breakout day	The breakout was traded, not invested in — follow-through is less likely

The high-conviction combination is a volume spike with high delivery on a breakout: not only did many people participate, they kept the position. A volume spike with 22% delivery is a day-trading event.

Where volume analysis breaks

Illiquid stocks. In a name trading a few lakh rupees a day, one order is the entire volume profile. Every volume measure becomes noise, and every breakout is fake until liquidity says otherwise.
Index and derivative expiry days. Volume spikes for structural reasons that say nothing about conviction in the underlying.
Index inclusion or deletion. Passive funds must transact regardless of price — enormous volume, zero information about opinion.
Block and bulk deals. One negotiated transaction can dwarf a day's normal activity. Check whether a spike was a single block before interpreting it.
Corporate events. Buybacks, open offers and stake sales all generate volume that isn't a view on value.

Where people lose money

"Volume confirms the breakout" — confirms it how, exactly?

The standard rule is that a breakout should occur on volume well above average — often quoted as 1.5× or 2× the 20-day average. That is directionally right and too loose to be useful on its own.

What you actually want is evidence that the supply at the level was consumed: heavy volume, a close in the upper part of the day's range, and the level holding on the retest that usually follows within days. High volume with a close back inside the range is the opposite of confirmation — it means supply won.

The volume read

☐Is today's volume unusual for this instrument, against its own 20-day average?
☐On a range: what is the up/down volume ratio, and did the heaviest days close up or down?
☐Is OBV diverging from price?
☐Is volume drying up as a base matures?
☐On a breakout: was volume elevated, was delivery high, and did it close near the high?
☐Was there a block deal, index event or expiry that explains the spike mechanically?

See it live · The accumulation scanner here ranks bases on exactly these measures — up/down volume ratio, share of heavy days closing green, normalised OBV and dry-up — rather than on the shape of the range alone.

See scored bases →

In one screen

1Volume measures participation, never direction — it qualifies a price move rather than predicting one.
2Three measures do most of the work: up/down volume ratio, OBV direction versus price, and volume dry-up.
3Delivery percentage is Indian-market data that separates position-taking from intraday churn.
4Volume analysis is unreliable in illiquid names and around expiry, index events and block deals.

Check yourself

Nothing is scored or stored — the explanation after each answer is the point.

1/2

A stock breaks out to a new high on 3× average volume, but closes back inside the prior range. How should this be read?

2/2

Inside a flat 12-week range, up-day volume is 1.7× down-day volume and OBV is rising. What does this suggest?

Next lesson →

Impulse, correction, contraction

← Previous

Levels: memory, not magic

← All lessons