Volume is one of the most important parameters when it comes to gauging the demand-supply equation in the stock markets. When combined with price, it can often reveal whether a trend is likely to continue or not. It is the fuel that drives the market.
Going a step ahead over volume analysis is the study of Delivery Volume that is reported by the stock exchanges every day after the market closes. Delivery Volume is an excellent tool to get clues about the immediate trend direction of a stock.
Let’s now have a look at how Delivery Volume differs from Trading Volume (or Volume).
What is Volume?
Volume or Trading Volume is the number of shares that are traded over a given period of time. It simply shows the level of participation (interest) of the market participants at a particular price point. It is usually plotted as a bar chart beneath the price plot.
What is Delivery Volume?
For every trade that takes place on the exchange, there is a buyer and a seller. However, all of these trades are not taken for delivery as many traders prefer doing intraday trades only where they enter and exit their positions within the same day itself. On the other hand, some traders who believe in the long term story of a stock take delivery of it to hold it for the long term. This type of volume is known as Delivery Volume.
Hence, we can say that,
Delivery Volume = Total Volume – Intraday Volume
Let’s understand the concept of Delivery Volume with the help of an example.
|1||A||B||Mr. A buys 100 shares from Mr. B|
|2||C||D||Mr. C buys 100 shares from Mr. D|
|3||B||C||Mr. B buys 100 shares from Mr. C|
|4||E||A||Mr. E buys 100 shares from Mr. A|
|5||C||E||Mr. E buys 100 shares from Mr. C|
|6||A||C||Mr. A buys 100 shares from Mr. C|
- Mr. A bought shares twice and sold once. Hence he is a Net Buyer. The unsold shares go for delivery.
- Mr. B created a short position but covered it later. Hence, no settlement required for this trade.
- Mr. C bought shares twice and sold both of them. Hence, no settlement required for this trade.
- Mr. D sold shares just once. He is a Net Seller.
- Mr. E bought and sold shares once. Hence, no settlement required for this trade.
Thus, as Mr. A is a Net Buyer and Mr. D is a Net Seller, shares get transferred from Mr.D’s demat account to Mr.A’s demat account.
Total Volume = 600
Intraday Volume = 500
Delivery Volume = 100
Delivery Volume Interpretations
Delivery volume in itself doesn’t tell us much. It is when we combine this parameter along with price is when the market picture becomes more clear to us. Here are the four rules for analyzing delivery volume and price:
- If price increases along with an increase in both volume and delivery volume, it indicates that delivery based buying is entering that particular stock. Hence, further upside is anticipated.
- If price increases along with an increase in volume, however delivery volume decreases, it indicates that speculative buying is happening in the stock and it is unlikely to go further up.
- If price decreases along with an increase in both volume and delivery volume, it indicates that delivery based selling is entering that particular stock. Hence, further downside is anticipated.
- If price decreases along with an increase in volume, however delivery volume decreases, it indicates that speculative selling is happening in the stock and it is unlikely to go further down.
Delivery volume is a very effective tool for carrying out thorough analysis of a stock. You can find the delivery figures of various stocks on the NSE website itself at the end of every day.
The greater the percentage delivered. The higher the conviction amongst traders in the directional move of the stock.
Although delivery volume is an important parameter to gauge the market, there are some other technical tools that can further enhance your trade setups. To know more on such indicators, please attend our Qualified Market Trader (QMT) stock market course.