Have you ever observed the heartbeat sign that comes in volume trading? As a child, I was always curious to know what it was and how it worked. Well, that was volume indicators in trading, which traders use to know how many other traders are selling or purchasing a specific stock at a particular rate. This blog discusses the types of volume indicators in trading and how to use them.
The volume indicator is used for exploring the strength and stability of future price movements of an asset. Traders only use these indicators to analyze the price movements of a stock and measure its stability in the different conditions of the market. It helps indicate to the traders how many stocks are being sold and purchased at a specific price in a particular period.
There are five different types of volume indicators used in trading. These are volume RSI, volume price trend indicator, accumulation/distribution indicator, volume weighted average price, and on-balance volume indicator.
To discover more details about these indicators, keep scrolling through the article until the end.
What Are Volume Indicators In Trading?
As stated in the above lines, volume indicators are known to be used to indicate the price movements of a stock. These indicators determine the stock capacity to a particular level, which is produced by the number of purchasers and sellers present in the current market. To observe the technical aspects of trading, the person who is trading usually checks the volume of the trade with the help of these indicators. Now, there are different types of volume indicators used by traders. Let’s discuss those in the following section.
Different Types Of Volume Indicators
There are five different types of volume indicators used in trading. As such, the purpose of these indicators is almost the same. Let’s see what these indicators are.
1. Volume RSI
The Volume Relative Strength Index (RSI) can be described as an indicator of volume to depict the price changes by processing changes in the volume of a stock. Traders use this indicator to trade the assets through the signals generated from the crossover.
To determine Volume RSI in the stock market, one must trade on the signals that range from 0-100% and only select the trade that oscillates in 50% through the center line. To use this particular indicator, you must remember two following laws:
- If the Volume RSI is below 50% level, it is a bearish indicator with bearish volume.
- If the Volume RSI is above 50% level, it indicates a bullish indicator with bullish volume.
2. Volume Price Trend Indicator
The Volume Price Trend indicator is generally helpful to examine the direction of the price of an asset and its strength in the current market. In simple words, It interprets the volume and price of any stock while trading. The traders must also remember that a price increase will lead to an upward price trend with VPT and the reverse.
A decreasing volume with increasing price indicates negative divergence with reversal opportunity. On the other hand, an increasing volume with a decreasing price indicates positive divergence with reversal thereon.
3. Accumulation/Distribution
Accumulation/Distribution is a volume indicator that helps to measure the flow of funds that are going in and coming out of the stock. Using accumulation/distribution indicators, the traders look out for positive and negative divergences in the volume and price data of an asset. When accumulation takes place, it means that traders are buying the stock, and when distribution takes place, it means that the traders are in their selling place.
4. Volume-Weighted Average Price
If you want to know the average price of a stock, the volume-weighted average price indicator shows you the rice that is adjusted according to the volume of a stock. It is calculated by taking the total value of the asset’s price and dividing it by the volume of trades. Weighted average is meant to grow the importance of volume in trading exponentially. The indicator also indicates the entries and exit points by simply marking an asset’s support and resistance levels.
5. On Balance Volume Indicator
The on-balance volume indicator is an important aspect that helps decide the price of an asset through the changes in the volumes. OBV analyzes the selling and purchasing pressure by the volume that adds up during the purchasing and the volumes that decrease when selling.
Final Words
This article talks about the various Volume indicators in trading and how to use them to get the best trade. Although experienced traders already know about it, for newbies and seasoned traders, using these volume indicators can greatly help.
FAQs
What is a 24-hour volume indicator?
It is an indicator used for measuring the total volume of a symbol traded in the last 24 hours.
Is VWAP a lagging indicator?
VWAP calculation is based on historical data; as such, it is considered a lagging indicator.
