Volume Indicators

Key Highlights

• Volume indicators are key tools in technical analysis that measure the amount of trading activity in an asset over a set period.

• Key points about volume indicators include measuring trading activity, indicating market strength and trend analysis.

• Common volume indicators are on-balance volume (OBV), volume RSI, money flow index (MFI), volume price trend (VPT), PVI and NVI.

What are Volume Indicators?

Volume indicators are key tools in technical analysis that measure the amount of trading activity in an asset over a set period. They help traders understand market trends by showing how strong or weak price movements are, which can guide decision-making.

Key Points About Volume Indicators

• Measure Trading Activity: They show how many shares or contracts were traded, reflecting market interest and liquidity.

• Indicate Market Strength: High volume usually signals strong price moves, while low volume may suggest weak trends or potential reversals.

• Trend Analysis: When volume increases with price changes, it confirms the strength of a trend. Low volume may challenge it.

Common Volume Indicators

• On-Balance Volume (OBV): Adds volume on up days and subtracts it on down days to show buying/selling pressure.

• Volume RSI: Similar to the regular RSI, but based on volume.

• Money Flow Index (MFI): Combines price and volume to track buying/selling pressure.

• Volume Price Trend (VPT): Measures price movements and volume changes

• PVI and NVI: Track positive or negative volume days to help identify bullish or bearish trends.

Why Volume Indicators Matter?

• Confirm Trends: Rising prices with rising volume suggest strong buying, while prices rising on low volume may indicate weakness.

• Breakout Analysis: A breakout with high volume is usually more reliable than one with low volume, which may signal a false breakout.

• Gauge Sentiment: Volume indicators help traders sense market mood and predict potential reversals based on trading activity.