Up/Down Volume Ratio

The Up/Down Volume ratio (U/D volume ratio) compares the interest of buyers vs sellers over a period of time.

It considers the volume on Up days and Down days over a specified period.

• An Up day occurs when the closing price of the stock is greater than the closing price of the previous day.

• A Down day occurs when the closing price of the stock is less than the closing price of the previous day.

It is assumed that if the stock has an Up day, the volume was due to the buying pressure and if the stock has a Down day, the volume was due to the selling pressure.

To calculate the U/D volume ratio, we divide the sum of the volume on Up days by the sum of the volume on Down days.

Remember that we are not dividing the number of Up days by the number of Down days.

U/D volume ratio interpretation

So, if the 10 days U/D volume ratio = 1, it means that an equal number of buying & selling had occurred over the past 10 days.

U/D volume ratio > 1, indicates that there have been more buyers than sellers over that time period and the ratio is bullish. In other words, more volume on the upside than on the downside.

U/D volume ratio < 1 means more sellers than buyers over that time period and the scenario is bearish, with sellers having the upper hand.

Ideal period for calculating U/D volume ratio

This is one question that is highly debatable. IBD’s MarketSmith keeps a default U/D vol ratio of 50 days. This is around 10 weeks of trading. The idea is probably to see the U/D volume ratio in an ideal base which can be around 6-8 weeks, according to the book ‘How to Make Money in Stocks' written by William O’Neil.

We, at Pro-Setups, believe that 10 weeks is a very long time. Probably, we should be more interested in what has happened recently, say in the second half, i.e. around the previous 5 weeks.

Hence, we have kept 21 days as a default period for calculating the U/D volume ratio in the Volume script and the Dashboard. This matches with the period used for counting the number of Pocket Pivot signals in the Dashboard. You can change this period in the Volume script by going to the settings.

Where to find it on TradingView and Dashboard

In the Dashboard, you will find it as a Volume filter and also as one of the columns in the results table. You can sort the ratio in the results table in ascending/descending order.

In the Volume script on TradingView, you will see the U/D volume ratio in the table, along with the count of pocket pivot signals and weekly & daily closing ranges.

How to use the ratio

Traders across the world use a U/D volume ratio > 1 for their long trades. Swing & Positional traders, especially those who follow the CANSLIM technique, like to see a U/D vol ratio of a minimum of 1.25-1.50 in their setups for long trades. Higher the better.

It is important to note that a higher U/D volume ratio is considered when a stock is within a valid setup. When the breakout has already happened, the U/D volume ratio is bound to be very high.

Take the case of Rail Vikas Nigam Limited (NSE:RVNL). As of 28th April 2023, the U/D volume ratio was 6.2 (very high!). If we look at its chart, the stock has already run-up. But if we were considering it on the date of breakout from the IV-Pause-Move setup (20th April), the U/D volume ratio was 2.1. A day before that, it was 1.6.

I guess it is time to hop on to the Dashboard and start scanning.

If you have any comments, suggestions, or feedback, please feel free to share.