The Complete Guide to Volume Meters
Volume indicators are technical tools to assess the bullish and bearish power of a security. Most specifically look at buying pressure versus selling pressure to determine which side controls the price action. Others try to identify the emotions that move security at a particular time. For example, unusually high volume compared to a moving average volume may indicate euphoria or fear, while much lower than average volume may reflect apathy or disinterest.
These indicators measure stocks in stock markets, contracts in futures markets and tick movements in forex markets. All versions attempt to accomplish the same types of technical analysis. When a market grows with increased volume, it is considered to be under accumulation. Conversely, when a market falls in increased volume, it is considered underdistribution. Additionally, a rising market with decreased volume generates bearish divergence while a falling market with falling volume generates bullish divergence.
The Forex market volume measures the degree of price movement over a certain period of time, rather than looking at individual buy and sell transactions. Forex traders often supplement their accumulation-distribution analysis by examining open interest in currency futures markets. Whether it’s equity, contract, or pair, volume is used in conjunction with price action to confirm trend strength, reveal trend weakness, and confirm breakouts and breakdowns.
Accumulation-Distribution (A / D)
Accumulation-Distribution (A / D) is a cumulative volume indicator, meaning that each data point is added to the previous data point before being plotted on a panel of metrics. As the name suggests, the indicator attempts to determine whether a security is accumulated (bought over time) or distributed (sold over time). The calculation measures the closing price against the range of the price bar and multiplies the result by the volume for that bar.
The direction of the A / D indicator generates convergence and divergence relationships with prices that aid in business decision making and risk management when used in conjunction with pattern analysis and analysis. other technical indicators. Rising price when A / D falling generates bearish divergence while falling price when A / D falling generates bullish divergence. The indicator also carves orderly patterns over time that resemble price action, with channels, trendlines, and triangles to aid in prediction.
On Balance Volume (OBV) was created by Joseph Granville in 1963 and is now the most popular accumulation-distribution indicator. OBV generates bullish divergence when price falls and OBV increases and bearish divergence when price increases and OBV falls. The value of the OBV at any given time is not important, but the relationship between current and past OBV levels determines whether the accumulation or distribution follows the evolution of prices.
OBV plots a running total of a security’s buy and sell volume, seeking to determine whether it is accumulating (bought over time) or distributing (sold over time). The calculation has three main elements. First, if the current price bar is higher than the previous price bar, current OBV = OBV of the previous bar + current volume. Second, if the current price bar is lower than the previous price bar, current OBV = OBV of previous bar – current volume. Third, if the current price bar = the previous price bar, the current OBV = the previous OBV.
Chaikin Money Flow (CMF)
Chaikin Money Flow (CMF) was created by Marc Chaikin in the early 1980s. The indicator measures the accumulation and distribution of a security over time. It is an oscillator, with values ranging from +100 to -100 and a zero line which means neither accumulation nor distribution. As with other oscillators, the CMF generates buy, sell and confirm signals via bullish and bearish convergences and divergences as well as crosses on the zero line.
Chaikin applied a setting of 21 time periods (one month) to the indicator, but this element is now customizable in charting programs and has different implications, depending on the time period chosen. According to the creator, the persistence of cash flows over 6 to 9 months assesses the accumulation or distribution by large funds and institutions. Most traders don’t need this information, but the CMF also reveals convergence-divergence in short-term money flows when viewed with shorter time frames and parameters.
Volume oscillator (VO)
The volume oscillator (VO) identifies accumulation and distribution by examining the relationship between two moving volume averages. A 14 day or week fast cycle moving average is often used in conjunction with a 28 day or week slow cycle moving average, but the settings are customizable. The calculation simply subtracts the slow MA from the fast MA and plots the result as a line or histogram. As with other oscillators, VO fluctuates on a zero line but has no fixed upper or lower values.
The VO is non-directional and should increase in both bullish and bearish trends. It generates a bearish divergence when the price rises and the VO falls and a bullish divergence when the price falls and the VO falls. The indicator also has the power to identify overbought and oversold markets and to confirm breakouts and blackouts. Additionally, zero line crosses may reveal important turning points or be used to confirm other technical indicators.
Power balance (BOP)
Balance of Power (BOP) measures the strength of buying and selling pressure. This oscillator is plotted in a panel with a center zero line and extremes at +1 and -1. Buyers have control when the indicator is above the zero line while sellers have control when the indicator is below the zero line. Readings near the zero line may indicate a trend reversal or a limited market. Values near +1 signal an overbought market while values near -1 signal an oversold market.
BOP divides the distance between the open and close of the price bar by the distance between the top and the bottom of the price bar. The initial result looks jerky and confusing, so the calculation is then smoothed by a 14-period moving average or the like. The distance above or below the zero line indicates the end of the positive or negative price change. It issues buy and sell signals via bullish and bearish divergences with the price, as well as crosses across the zero line.
Additional volume indicators
Klinger volume oscillator – examines long and short term cash flows to confirm upward and downward trends.
Negative volume index – assesses the impact of rising and falling volume on price movement over time.
On Balance Volume – calculates the accumulation or distribution of a security over time. It generates a bullish divergence when the price falls and the OBV increases and a bearish divergence when the price increases and the OBV falls.
Positive volume index – assesses the impact of rising and falling volume on price movement over time.
Aggregate projected volume – calculates daily volume up to an intraday setting and projects total volume for the remainder of the session.
Projected volume at the time – looks back on past sessions to project future volume over specified time periods.
Trade volume index – tracks the correlation between price movement and volume levels to assess accumulation and distribution.
Twiggs Money Flow – applies a variant of Chaikin Money Flow to measure the accumulation and distribution of a security over time.
Volume graph – draw a volume histogram under each price bar.
Volume oscillator – examines accumulation and distribution by examining the relationship between two moving volume averages.
Volume profile – displays the amount of trading activity of a security at different price levels.
Volume change rate – plots the percentage change in volume over a specified period of time to determine whether participation is increasing or decreasing.
Volume underlay – displays volume histograms in the same pane as the price, rather than in a separate indicator pane.