Volume Indicators: An Overview | TrendSpider Learning Center (2024)

FAQs

Volume Indicators: An Overview | TrendSpider Learning Center? ›

Volume indicators provide valuable information about buying and selling interest levels in a financial instrument, allowing traders to gauge market sentiment and make informed decisions. Confirming price trends and identifying potential reversals.

Volume indicators indicate the perception of investors about a specific stock by measuring the number of traders that are interested in buying or selling it at a given point. If it indicates a negative perception, it means that the price of a stock can decline shortly, and it can show a bearish pattern.

What Are Some Popular Volume Indicators? Popular volume indicators include three mentioned above—on-balance volume (OBV), Chaikin Money Flow, and Klinger oscillator—as well as the volume price trend indicator and Money Flow Index.

Limitations of OBV

To some extent, OBV's predictive power is limited by the fact that it is a leading indicator rather than a lagging one; the signals it generates can only point to future developments rather than provide insight into the past.

What Is Volume Profile? A volume profile, depicted by a volume-by-price (VbP) chart, is a trading indicator that displays the total volume traded at each price level over a specified period of time. The volume profile may be based on the visible range, which is the period of time that is currently visible on the chart.

Importance of volume indicators

They are useful tools for both traders and investors, providing a more in-depth understanding of price movements and patterns. Volume indicators assist investors in determining the intensity and direction of market movements by analysing the number of shares traded.

Understanding the Positive Volume Index (PVI)

The PVI will be more volatile when volume is rising and the NVI will be more volatile when volume is decreasing. Since the primary factor of the PVI is price, traders will see the PVI increasing when volume is high and prices are increasing.

Select Volume Twiggs Standard Deviation in the Indicator menu to highlight volume bars that are one or two standard deviations above or below average volume. High volume normally denotes opposition to the current trend and low volume often denotes lack of support for the trend.

What is the difference between volume and OBV? ›

Volume shows crowd sentiment as price bars carve out patterns that predict a bullish or bearish outcome. OBV involves an ongoing tally of the flow of volume. OBV's indicator line can reveal buying and selling moves of the smart money—institutional investors and other major players.

Accumulation/Distribution. While the OBV and Accumulation/Distribution (A/D) indicators incorporate volume, there's a critical distinction. The OBV focuses solely on the closing price's relation to the previous closing price, whereas A/D also considers the day's trading range.

During a trading range, if the OBV is falling, distribution may be taking place—a warning of a downward breakout. When price continues to make higher peaks and OBV fails to make higher peaks, the upward trend is likely to stall or fail. This is called a negative divergence.

Volume profiles are a primary component of VWAP execution strategies. A study of simulated VWAP execution performance using intraday tick data indicates that innovations beyond a simple smile profile yields almost no benefit.

To use the Volume Profile Indicator, you need to be aware of the significant levels or the components of the histogram displayed on the chart. Here we list and describe some of those: Low Volume Node: As indicated by the name, a low volume node indicates the price level where the trading activity or volume is low.

Investors can also check trading volumes with brokers and investment platforms. Platforms also use candlestick charts to show volumes for a particular time frame. The green bar shows buying volumes and the red bars show sell volumes. There are also volume charts depending on the time period one wants to keep in mind.

To reduce such risk, it's best to stick with stocks that have a minimum dollar volume of $20 million to $25 million. In fact, the more, the better. Institutions tend to get more involved in a stock with daily dollar volume in the hundreds of millions or more.

The OBV indicator sends the following signals: Trend confirmation. If there is positive volume pressure, the curved line goes up following the price rise. Otherwise, if there is a negative volume pressure then the line goes down following the price fall and the ongoing trend is likely to continue.

Description. The Volume Flow Indicator is a long-term trend following study which uses the same principle as On Balance Volume. However, instead of comparing two Close prices of adjacent bars, it compares change in typical price with a so-called "cut off" value based on standard deviation.