What it means
A normal volume chart shows how much was traded in each time period, such as each day. Price by volume turns that idea on its side and shows how much was traded at each price, whatever the date.
The longest bars mark the prices where the most shares changed hands, and the shortest bars mark prices that were passed through quickly. Traders use the bars to find levels where the market has shown strong interest.
A price with heavy past trading often acts as support, meaning buyers tend to step in as the price falls towards it, or as resistance, meaning sellers appear as the price rises to it. The reasoning is that many investors bought or sold there and remember it.
The tool is also useful for judging how crowded a price is. If a stock sits just above a thick bar, many holders bought near that level, so a fall back to it may prompt anxious selling.
A price in a thin zone, with little previous trading, can move quickly because few holders are anchored to it. Price by volume is a close relative of the volume profile and the market profile, which use similar ideas.
Software lets you choose the period, such as the last three months or the last year, and the size of each price band. A short period shows recent behaviour, while a longer one reveals more lasting areas of interest.
Remember that it is a record of the past and not a forecast. Support and resistance levels can fail, especially when news changes the outlook for the company.
Finance professionals who are not chart readers can still use it to understand why a share seems to stall at a certain price. Because volume figures count both buyers and sellers, every trade has one of each, so the bars show activity and not direction.
Pair the tool with other analysis, such as earnings and trend data, before acting on it.
In practice
Real-world examples.
Example
A trader looks at a share currently at $21.50 and sees a thick bar at $22 to $23. She expects sellers to appear as the price rises into that zone, because many holders bought there. She places her sell target just below $22.
Example
An investor relations manager at a listed company reviews price by volume after a share price slump. The chart shows that most shares changed hands between $30 and $32, where the shareholders are now sitting on losses. She prepares a message for these investors before the next results.
Example
A portfolio manager wants to buy a large block without moving the price. She uses price by volume to find a range with high past volume, where there are usually plenty of sellers. She spreads her orders over several days within that range.
Formula
Calculation
Share of volume at a price band = volume in that band / total volume in the period x 100%.
Over one month, a stock trades 400,000 shares between $20 and $21, 900,000 between $21 and $22, 1,500,000 between $22 and $23, and 700,000 between $23 and $24. Total volume = 400,000 + 900,000 + 1,500,000 + 700,000 = 3,500,000 shares. The $22 to $23 band holds 1,500,000 / 3,500,000 = 42.9% of all trading, so it is the area of greatest interest and a likely support or resistance zone.Case study
Seen in the real world.
Altamira Software is a fictional listed company used here to illustrate the idea. After its share price fell from $40 to $28, an analyst added a price by volume display to her chart.
The display showed the biggest bar between $33 and $35, where nearly a third of the previous quarter's trading had taken place. When the shares rallied back towards $33, they stalled repeatedly, as holders who had bought higher sold to break even.
The illustrative analyst told clients to expect resistance in that zone until good earnings news arrived. The shares finally moved through $35 after a strong results announcement, and the heavy bar became a support level.
Watch out
Common mistakes.
- Reading the bars as a forecast. They record past trading and cannot promise that a level will hold.
- Ignoring the time period selected. A three-month and a three-year display can look very different.
- Assuming heavy volume means buying. Every trade has a buyer and a seller, so the bars show activity, not direction.
Questions
People also ask.
What is the difference between price by volume and ordinary volume?
Ordinary volume plots trading against time, while price by volume plots trading against price.
Is it the same as volume profile?
They are very similar, and the names are often used interchangeably, though some platforms differ in how they build the bars.
Can I use it for any asset?
Yes, it works for shares, futures, currencies and funds as long as reliable volume data is available.
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