Technical indicators are indispensable tools in trading. Based on them, trading strategies are developed and market movements are analyzed. Almost every trader in his methodology has 2 or more technical indicators. Experts, when forecasting changes in market quotes, use a wide variety of tools in the analysis, allowing them to research the market as accurately as possible and suggest its further possible movement.
All technical indicators have their own characteristics, features, purpose and parameters. Some are used in a calm market in making forecasts and in trading, while others are used only during strong impulses and trends. A special role is played by instruments showing volumes, for example, the Volume indicator. It is about him that will be discussed in our article. We will talk about its characteristics, features, varieties, as well as how it can be used in trading and for analyzing the financial market.
Volume indicator description
This tool is available on all popular trading platforms. For example, on MetaTrader it is installed by default at the very bottom of the chart and is displayed with a histogram. If a trader changes the timeframe, then the indicator values will also change, but it will still be displayed at the bottom of the chart.
Histogram columns have different sizes. The higher they are, the greater the interest (supply and demand) of market participants. Using this tool, you can track transaction volumes. When the histogram bars decrease in size, this means that the interest of the players has decreased, and the volume of positions in the financial market has decreased.
According to its technical characteristics, the Volume - oscillator indicator. Therefore, it has all the advantages, disadvantages and features of this class of tools for trading. He independently performs the calculations and generates the results immediately on the chart.
In trading in functionality, there are 5 types of oscillators that measure:
- Impulses and trend.
- Market volatility.
- Speed in the price range.
- Cycles and their length.
- Volumes.
The Volume indicator refers to an oscillator that measures the volume of market positions.
Classification and types
Volumes in trading in the financial market are very important indicators. They allow traders to track the positions of large players and open trades at the most favorable moments.
Classification of volume indicators:
- Horizontal volume (horizontal images) - defines indicators by price levels, that is, inside a candle or bar.
- Vertical volume - the histogram is displayed vertically and shows volumes per unit time, which depends on the timeframe set.
In principle, there are only two types of volume indicators: for obtaining values and their changes inside a candle, that is, a horizontal view and for determining the volume of oppositions in any period of time. Tick volumes are used only on Forex and in binary options. They show how many positions are completed in the right time range.
Types of volume tools:
- On Balance Volume - an indicator that determines the indicators of the balance of volumes.
- Volume Rate of Change - displays the rate of volume change.
- Klinger Oscillator - to determine short-term trends, used during pullbacks in long-term trends.
- Volume Oscillator - determines the general direction of the volume trend. It is based on the difference between two moving averages that are superimposed on the volume of transactions.
- Accumulation-distribution is a tool used in trading as a filter of both market volatility and trend. He analyzes the movement of impulses with market volumes.
- Chaikin Oscillator - showing divergence and other indicators.
Technical Tool Functions
The Market Volume indicator performs one of the main functions in trading in the financial market. Depending on the purpose and use of the trader, he performs the following functions:
- Defines general indicators of market positions.
- Shows values of volumes in a certain period of time.
- Displays statistics in the desired bar or candle.
Using this tool, you can get information about the market situation: what is happening on it at the moment, what may be changes in the future, about the interest of players in a certain time period and the opening of transactions by large market participants.
In trading, the volume indicator is quite widely used by traders. On its basis, many trading strategies have been developed that allow them to consistently earn money in the financial market.
Indicator Settings and Parameters
From the description of the Volumes indicator, which is a standard tool on many well-known trading platforms and is installed for free, you can understand that this tool practically does not need any settings. To attach it to the chart, you need to make just a couple of clicks, that is, select it in the "Tools" and click the "ok" button.
Developers recommend leaving the original settings. The only thing that can be changed at the discretion of the trader is the color scheme of the histogram display and the line thickness. He does not need any additional testing.
Typically, the Volumes volume indicator has two colors: red and green. If it has more columns of the first option, it means that the market price often decreased, and with the superiority of green, it increased. This indicator is set in a separate window under the chart and does not interfere with the analysis of market quotes.
Description of Better Volume
This trading tool refers to custom technical indicators. All values in it are presented in the form of a histogram, which completely coincides with the Volumes indicators. The Better Volume indicator is an improved version of the standard tool.
Indicator Benefits:
- It is much more convenient for a trader or expert to perceive information by coloring values in different colors.
- Absolute coincidence of indicators with a standard tool.
- The Better Volume indicator fully performs all the basic functions, but is more convenient to use.
Experts recognized this tool as the best for determining vertical volumes.
Indicator Decryption
Since it is displayed on the chart, more precisely, in a separate window as a histogram, the columns have the following meanings:
- Red color. Appears after large volumes. If a signal is formed at a peak, then it can mean a change in trend or momentum, as well as a correction. The Better Volume 1 5 indicator with a period of 15 shows them especially well.
- Yellow. It is an auxiliary signal, usually formed at the end of correction or impulses. It marks their completion and informs the trader that at this time there are no people who want to make any purchases or sales on the market.
- Green color. This is a reversal signal. Usually it informs about large players leaving the market and is a powerful indicator. He informs the trader that large participants have begun to take profits and leave the market, passing it to smaller players.
- Blue. Neutral signal, practically meaningless. It shows changes in ticks.
- Brown color. Formed upon completion of the downward direction. Usually it can be seen after large volumes. If this signal appears at the end of the upward movement, then it must be ignored.
In addition to the color marking of the histogram, the indicator has the MAPeriod parameter, which shows the period value for the moving average. It can be installed independently. This line is also displayed in the indicator window under the chart. Its function is to indicate the significance of the volume and probability of the truth of the histogram signals. If it is above the columns, then the values of the technical tool are more than average, lower - less.
Volume Profile Description
Along with vertical volumes, horizontal indicators are widely used in trading. The Volume Profile indicator allows you to analyze price levels and find out what the situation is on the market between buyers and sellers. Horizontal volumes are one of the important parameters for predicting market movement.
After joining the chart, the Volume Profile displays its values directly at market prices. It is displayed as a horizontal bar chart for each level. The larger the volumes, the longer the bar of the indicator. Using this tool, traders determine the balance between the exposed positions for the purchase and sale.
Description of On Balance Volume
This tool was developed by Joseph Granville. It is an indicator of equilibrium volume and has the abbreviation - OBV. By properties, this technical tool is characterized as an indicator of changes in the speed of price and volume. OBV follows market quotes.
The On Balance Volume indicator is displayed on the chart as a line that follows the trend movement. In trading, it is used by traders as an indicator of the reversal of a market direction.
Description of Volumes Divergence
One of the most favorite phenomena for traders in the financial market is divergence. To determine it in trading, a special tool was developed - the technical indicator Volumes Divergence.
With its help, you can calculate the interest of market participants in a certain time period in a particular asset. Volumes Divergence shows the difference in directions between market quotes and histogram values of the volume indicator.
Application area
All volume indicators are used to quantify positions at the price level or per unit of time. Based on horizontal and vertical volumes, special trading strategies have been developed .
Based on their indicators, these technical tools determine trading signals for entering and exiting the market. They are widely used during trading and for the analytical forecast of market movement.
In addition, volume indicators can be used in trade as filters to filter out false signals for other instruments.
Using Volume in Financial Market Trading
The Volume indicator is used in trading as a tool that confirms and determines the seriousness of the intentions of market quotes. If prices are characterized by high volumes, then the continuation of such a movement will have a much greater chance than with small values.
In situations where the market price has made a sharp leap in any direction, but at the same time its volume indicators are small, this jump should be regarded as an accident. That is, such a phenomenon has the least probability of continuing the direction. Therefore, in trading, Volume is used as a tool for confirming trading signals, candlestick patterns, figures of technical analysis and divergence.
For example, the graphic figure "Head and shoulders" is always accompanied by large values of volumes, which determines a high degree of probability of its operation. In this situation, Volume acts as a confirmation signal of a reversal of market movement.
In candlestick analysis, it is also used as a filter to filter out false signals in combinations and configurations. For example, the “Shooting Star” pattern has formed on the market. If at the same time the volume of positions shown by Volume has increased significantly, then such a signal (for a reversal of movement) can be considered confirmed and an order can be opened.
Volume tool features
The technical indicator Volume, as well as other tools developed on its basis, show the interest of players in one or another movement in the direction of the market price. Horizontal volumes allow you to analyze the market by price levels, and vertical volumes - in a certain time range.
The greater the interest of market participants in any movement, the stronger the likelihood of continuing this movement increases and the higher the value of the volume indicator. The features of volume oscillators (if we compare them with other indicators) include their ability to anticipate future events and to signal changes in market quotes in advance.
Tips and tricks for traders
A wide variety of volume indicators opens up great opportunities for traders and experts in the field of financial market analysis. Professionals advise beginners to carefully study the characteristics and features of the selected tools before using them, and also begin to use them in real trading only after testing on a demo account so as not to expose your deposit to financial risks.
Rules for volume indicators:
- If volume indicators decrease, this means a decline in interest in a trading asset. Therefore, there are two possible directions for the development of the event: short-term price stabilization or a change in the direction of market quotes.
- An increase in indicators is a signal of an increase in demand for an asset or a market reversal.
- In some cases, a gradual decrease in volume values may indicate a sharp change in price.
- After the formation of peaks on the chart, there is a high probability of a market reversal of momentum or trend.
In trading, it is important to minimize financial risks and trade based on market patterns and fundamentals.