How to Refine Volume Indicators with the Midpoint

Volume is the term for the number of shares or contracts of a security traded in a given period. A technical analyst named Marc Chaikin figured that a representative volume is the percentage equivalent of the price that’s above the midpoint of the day. You calculate a midpoint as the high of the day plus the low of the day divided by two.

If a security closes above its daily midpoint, bullish sentiment ruled:

  • The close over the midpoint defines accumulation, referring to buyers being willing to pay higher prices to get sellers to part with the security.

  • The closer the closing price is to the high, the more bullish it was.

  • If the price closed right at the high, then you say that 100 percent of the volume can be attributed to bullish sentiment.

Distribution is the term for sellers willing to accept lower prices in order to induce buyers to buy. Lower prices imply bearish sentiment. Distribution is calculated the same way as accumulation — a close below the price midpoint means distribution:

  • The closer the closing price is to the low, the more distribution existed.

  • If the close is exactly at the midpoint, then the indicator has the same value as yesterday — and you have no reason to add or subtract volume from the running total.