Estimating Supply and Demand from Price-Bar-Weighted Volume

Summary

The indicator estimates how much of each volume bar reflects demand or supply using the candle’s shape, then smooths both estimates with weighted moving averages. For an upward candle, its formula allocates more volume to demand; for a downward candle, more to supply. A bar with no price range receives an even split. The difference between the smoothed series forms a net-volume plot, shown around a zero line alongside optional classic volume bars. The author suggests watching pronounced imbalances, peaks, troughs, and zero crossings as possible areas of future support or resistance, and using the series to consider accumulation or distribution. Example chart commentary describes buyer strength in one stock and persistent selling in another, but the document supplies no systematic test or quantified evidence. The approach is explicitly a proxy: it infers trading pressure from bar shape rather than bid/ask or lower-timeframe data. It does not track trend, and the author recommends pairing it with trend or momentum analysis rather than using it alone.

Key ideas

• The indicator splits each bar’s volume into estimated demand and supply using its price-bar shape.
• Weighted moving averages smooth the two volume estimates before their difference is plotted as net volume.
• The author proposes net-volume extremes and zero crossings as potential levels to monitor for future price reactions.
• The method does not use bid/ask data and does not incorporate trend, so it is an approximate measure rather than observed order flow.

Tags

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.