May 27 2021 0

Volume indicators are what you need If you are a market decision maker based on the volume of financial assets traded on a given timeframe. These indicators help to measure the total amount of money a certain financial asset is sold or bought. In addition, the volume indicator also helps you to check how many contracts and CFDs have been traded. This is where online charts and price patterns become the ultimate tool for measuring and trading volume.

Technical traders are well aware of the important role volume plays when examining different price patterns. In addition, the volume indicator can be used in conjunction with several other key technical indicators to provide an in-depth overview of the market for investors.

technical analysis

In this article, we will go through and analyze some of the most popular and effective volume-based indicators to improve your trading efficiency.

Top 3 Volume indicators

Each volume indicator represents a mathematical formula that is visually plotted on a chart or trading price pattern. Each specific indicator corresponds to a different formula. For this reason, there are flexible solutions for every trading strategy. Traders can choose one of three indicators to meet their own trading strategies. The choice of indicator also depends on the market approach.

Investors are not required to use any of the following indicators. They cannot guarantee 100% success. However, these indicators offer greater entry decision-making capabilities and a broader market overview. And here are the top 3 volume indicators for investors:

On-balance volume (OBV)

A perfectly balanced volume indicator for beginners. The indicator requires no special skills or operations. It not only represents divergence, but also describes the volume added or subtracted when the market ends at a high or a lower price.

OBV

Klinger Oscillator

This indicator helps to identify movements on the price zone below or above the 0. In addition, the indicator makes it possible to calculate the total volume of buying and selling on a certain time frame.

Klinger

Chaikin Money Flow Indicator

This is a type of oscillating short-term volume indicator. Traders use this indicator to watch for price increases with increasing volume and vice versa (prices close lower with volume trading assets with lower intraday price ranges).

Chaikin

How to use volume indicators

This guide not only talks about how to use volume-based indicators, but also summarizes what investors see to learn from experience. Often traders spot sharp price movements in the market. Sometimes you miss out on weaker price moves that can also be profitable. The following steps are not 100% guaranteed to get you to the top, but they will certainly help you make better and faster decisions in the market.
In summary, volume indicators will help investors:

  • Confirmation of the trend - we are used to seeing prices rise when total market volume goes up. However, when price rises but volume decreases, it can be a sign of an early reversal as traders have little interest in a particular asset.
  • Check Volume and Price Movements - mainly related to volume moves and the market runs out of steam. The above factors represent fast and powerful price movement that is often accompanied by a rapid increase in trading volume. If this situation occurs in the market, the corresponding trend is most likely coming to an end.
  • Bullish Signals - when the price moves lower but doesn't hit the previous low it can be interpreted as a bullish sign, especially when the price is falling but the volume is up.
  • Volume History Overview - traders can track the market and price movements over a particular segment to compare it to the current market situation. We recommend using data from recent days because of higher relevance.

Conclusion

Tracking volume closely will help improve trading as traders will observe specific market movements or spot potential reversals. In addition, you can also confirm the trend as well as determine the strength of the market. Volume indicators are great for making better entry decisions and helping to identify market strengths and weaknesses. However, sometimes this group of indicators is not 100% as accurate as you would expect, especially in short-term trading.

author

Fanara Filippo

Hey, I’m Fanara Filippo. I’m the founder of this site. I'm currently living in Bangkok, Thailand. I have been trading forex for more than 5 years. You can read my articles about the best forex brokers on this page. Let’s review brokers today.


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