Volume Vs Delivery Volume; which is better for a Stock Trader?
Being a technical analyst, I understand the importance of trading volume. It is quite helpful to derive the demand and supply. Both price and volume are used as inputs to study the markets. Meanwhile the stock exchange provides additional information about volume called ‘delivery volume’. This can help traders to get clues about near term market direction. So I have decided to write this blog to share my understanding about volume and delivery volume.
What is Volume?
The quantities of share traded are known as volume in the stock exchange. This can be grouped in various time frames as per our requirement (5 Minutes, 1 Hour, daily, weekly, monthly, etc.). It cannot be termed as buying volume or selling volume. As for every trade that takes place one buyer and one seller is needed. The high volume indicates the significant participation of the traders during that period and price range.
What is Delivery volume?
Not every trade goes for a settlement. Sometimes the trade could be intraday in nature, where the traders exit their position within a day. Delivery volume can be derived by excluding the trades which were settled within a day.
Delivery Volume = Total trade settled EOD.
Delivery Volume = Total Volume – Intraday Volume.
|Trade 1||D||B||Trade 1 – Mr.D Bought Shares From Mr.B|
|Trade 2||C||D||Trade 2 – Mr.C Bought Shares From Mr.D|
|Trade 3||B||D||Trade 3 – Mr.B Bought Shares From Mr.D|
|Trade 4||C||A||Trade 4 – Mr.C Bought Shares From Mr.A|
|Trade 5||D||B||Trade 5 – Mr.D Bought Shares From Mr.B|
|Trade 6||B||C||Trade 6 – Mr.B Bought Shares From Mr.C|
|o Mr.A has just sold share once, So He is a Net Seller – Hence it should be settled – Net seller.|
|o Mr.B Created Short twice and covered the positions – No settlement required.|
|o Mr.C Bought share twice but sold once – Hence Remaining One Marked for Settlement – Net buyer.|
|o Mr.D Bought and sold share twice – No settlement required.|
|Exchange settlement activity|
|Shares have to be transferred from Mr. A’s Account to Mr. C’s account.|
- Total Volume = 6 (There are six trades taken place on the trading day)
- Intraday Volume = 5 (Out of six total trades, the five trades were settled among traders within a day)
- Delivery Volume = 1 (Although there was six trades, the exchange is suppose to settle only one transaction EOD which is transfer of shares from A’s account to C’s account)
How to use Delivery Volume?
In general, delivery volume is quite reliable to understand the near term trend. Especially during breakouts, we need high delivery volume to acknowledge the strength of the trend.
- Scenario 1: Today Total Trading Volume is 1000 units and price increased by 5%. Does it indicate anything?
Yes, we can say the price rallied so bulls were quite powerful. But we cannot comment on their near term expectations.
- Scenario 2: Today Total Trading Volume is 1000 units and price increased by 5% and Delivery Volume is 800. Does it indicate any thing?
Here it is not just the price rally; we got some additional clue called delivery volume. Almost 80% of trades were gone for settlement. This indicates the bulls were not ready to exit in intraday even after getting 5% rally. It indicates the bulls may expect something more in near term.
- Scenario 3: Today Total Trading Volume is 1000 units and price increased by 5% and Delivery Volume is 100. Does it indicate any thing?
Although it looks positive from the price points, but the delivery volume is low. This indicates most of the traders exited their positions. So it’s very difficult to forecast the near term price movement.
Delivery volume is one good piece of information a technical trader can use. We use this at various places in our analysis. You can find the delivery volume filter and charts with delivery volume at EQSIS Stock charts. Hope this has given some clarity and insights about volumes.
For more information, you can comment below.