Volume indicators or a set of technical tools that helps in the identification of bull or bear power in the market.
These indicators are used to gauge and evaluate whether volumes are exceptionally high than the moving average over a certain period of time indicating euphoria or fear, while on the flip side, they tell when volumes are drastically lower than their average moving period so as to identify indifference or lack of interest in the market.
These indicators measure shares in the equity markets, contracts in the futures markets, tick movements in the forex markets, and retail participation in crypto markets.
Generally, when the markets are rising along with increasing volume, it is called the accumulation phase and vice versa, when the markets are falling along with increasing volume, it is called the distribution phase.
This is a volume-based indicator that was essentially designed to find out the supply and demand in the market. It attempts to understand whether traders are buying or selling in the market, and it does it by measuring the money flow volume.
This indicator’s main job is to reveal the divergences between the current price action and the money flow volume to identify entry and exits.
The main component of this indicator is the money flow volume multiplier, which is basically the relationship between the current period’s closing price and the previous period’s high/low range.
A/D indicator direction generates convergence and divergence relationships with the price that assist in trade decision-making and risk management when used in conjunction with pattern analysis and other technical indicators.
On Balance Volume
OBV is indicated as a derivative of accumulation and distribution indicator.
Characteristically, this is a cumulative technical tool meaning on days when the price went up, the day’s volume is added to the cumulative OBV total. If the price went down then the day’s volume is subtracted from the OBV total.
After that, the OBV points are then plotted as a line for easy interpretation for technicians.
When the volume and net buying days outpace the volume of net selling days, the obv rises. When the volume on net selling days outpaces the volume on net buying days the OBV falls.
The main characteristic of the OBV is for identification of confirmation of overall market trends. This can be helpful in confirming signals to be set up generated by additional signals which rely on being able to identify trends in order to be effective.
This indicator is made up of two moving averages surrounding volume, one being fast and one is slow. This slow volume MA is then subtracted from the value of the fast-moving average. And then the volume oscillator measures the volume by analyzing the relationship between the two moving averages mentioned.
The moving average has a default setting of 14 for the fast one and 28 for the slow one.
The trick to use a volume oscillator helps in analyzing how an increase or decrease in the price along with an increase in volume could potentially signal trend strength. The key here is to follow the fast-moving volume MA.
If it is above the slow-moving MA and above the zero line, The result may confirm if the market trend is bullish or bearish in tandem with the price direction.
For example, if the fast moving average is below the slow moving average and the zero line, while the prices are rising, it means a divergent has occurred which is a warning to traders to signal that the current price direction is weak and there may potentially be a trend reversal in near future.