The analysts during the technical analysis use uptick volume. It is almost always used in conjunction with downtick volume to measure net volume or the uptick/downtick ratio. The net volume is very simple and malleable indicator that means that it can be used as a confirmation tool for a wide number of other volume indicators. This can also be used to spot divergences between volume and price or bid/ask prices. Bid volume using similar logic is compared to the uptick volume directly.
Uptick and Downtick Volume
Uptick refers to the trading volume when stock prices increase, reflecting excessive demands of buyers and consequently driving the stock higher. Consider that the volume of a security that trades at a price higher than its immediately prior price is an uptick volume. It may also occur when the previous tick was up and the current tick volume is unchanged.
The two most direct indicators stemming from the assumption that security price action follows trading volume are Uptick and downtick volume. Where, uptick volume is the number of shares of a particular stock that are traded when price is increasing. While, downtick volume shows how many shares are traded when prices drop.
Usually, the net volume is calculated by subtracting downtick volume from uptick volume. In general case, relationship is sometimes also expressed as a ratio by uptick / downtick, but the usual concept is the same that the more uptick relative to downtick is a bullish sign, while more downtick is a bearish sign.
Volume, Momentum and Confirmation
The traders and technical analysts are very concerned with the momentum of price action. Some volume indicators like uptick volume are among the most popular momentum-assessing tools. If prices rise with a lot of uptick volume and when prices rose without significant uptick volume, then the veteran chartists believe that the likelihood of a bull trend is greater.
Uptick volume is chiefly an agent of confirmation. However, according to the theory of Dow, price trends absolutely must be confirmed with sufficient volume. Approximately all major technical indicators, like the moving average convergence divergence (MACD) and the relative strength index (RSI), can benefit from uptick and downtick volume confirmation.
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