Welcome back!
Complement of the season to everyone, Let us continue from where we stopped last year. Today, we are going to start by discussing volume indicators.
VOLUME INDICATORS
Volume indicators are technical analysis tools that use the volume of trading activity in the market to forecast future price movements. These indicators can help traders identify trends, determine the strength of a trend, and confirm trend reversals. There are several different volume indicators, each with its own specific use and interpretation. Here is a brief overview of some of the most popular volume indicators:
On-Balance Volume (OBV)
This indicator calculates the total volume of a security and adds or subtracts it based on the direction of the price. If the price is up, the OBV adds the volume, and if the price is down, it subtracts the volume. This helps to show the relationship between price and volume, and can be used to identify buying and selling pressure.
Chaikin Money Flow (CMF)
This indicator uses both price and volume data to measure buying and selling pressure. It does this by calculating the amount of money flowing into and out of a security over a specific time period. If the CMF is positive, it suggests that money is flowing into the security and that buying pressure is strong. If the CMF is negative, it suggests that money is flowing out of the security and that selling pressure is strong.
How to trade with CMF
a. Zero Line Crosses
The basic trading premise with the CMF indicator is if the indicator is above 0 this is a bullish sign, while a reading below 0 represents a bearish signal. Reading above +.25 or below -.25 indicate strong trends and positions can be added on minor corrections.
b. Trend Lines
Like many other indicators, traders will draw trend lines on the indicators themselves and look for both breakouts on the indicator and the price on the chart. This method is very subjective, since the trader will have to accurately identify the trend on the indicator.
c. Divergence
Divergence can show up in the indicator when the chaikin money flow indicator makes a higher high, while the price action makes a lower low. This implies that there is less selling pressure pushing the security lower, thus a bounce is in order.
Volume-Weighted Average Price (VWAP)
This indicator calculates the average price of a security based on the volume of trades over a specific time period. It is often used as a benchmark for evaluating the performance of a security or portfolio.
Accumulation/Distribution (A/D)
This indicator uses both price and volume data to identify trends in the market. It does this by calculating the net difference between the volume of trades on up days (days when the price is rising) and the volume of trades on down days (days when the price is falling). If the A/D is increasing, it suggests that there is buying pressure in the market. If the A/D is decreasing, it suggests that there is selling pressure in the market.