Volumes is one of four basic volume indicators, along with the Money Flow Index, On Balance Volume, and Accumulation / Distribution tools. It has to be mentioned here that this is the most basic tool for analyzing the market situation. Volume is the basis for technical analysis of price charts. The volume of turnover, i.e. the size of the turnover can confirm or deny the signals generated by various AT indicators. This volume is not a mere volume. The Volumes indicator shows how many times the price of an instrument has changed over a given period of time.
We often forget about the most fundamental indicators of technical analysis – not just the volume, but also, for example, moving averages. In pursuit of increasingly new and at least theoretically more effective, and certainly more complicated tools, we skip over those that have served investors for decades and which also allow for above-average return rates.
The Volumes indicator is used by investors trading on all types of markets – currency, stock, commodity, by speculators playing with derivative instruments such as futures or options, by those investing in bonds, etc. Without exception. More volume is so fundamental on the financial markets that it is often not even included in the group of indicators of technical analysis, but in a separate category that consists only of it, but Volumes indicator is something else. The mere volume shows how many papers have changed the owner. Such volume indicators as On Balance Volume, Money Flow Index, or Accumulation / Distribution include turnover volume and price fluctuations. Volumes indicator is confined to the number of price changes – regardless of the size of the change and the value of the transaction.
Construction and operation of Volumes indicator
Volumes show how the involvement of investors in a given financial instrument changes. The decline in the value of the indicator points to a lesser „fight”, which means the outflow of capital from the market, and the increase of the indicator means a greater „fight”, i.e. the inflow of capital, and thus the increase in turnover.
In terms of appearance, the Volumes indicator is different from a regular volume available on trading platforms (for example, MetaTrader 4) only because it has two colors – it is green when it is growing and it is red when it is falling. It is presented by a histogram (bars) situated on a separate scale below the price chart.
Use of Volumes indicator
The Volumes indicator is never used alone. It is always used as an indicator to confirm other trading signals. A decline in value, that is practically a decrease in turnover during an uptrend, is a prelude to the end of an uptrend, and a drop of an indicator during a downtrend means the supply is being depleted.
Wskaźnik Volumes jest całkiem przydatnym narzędziem analizy technicznej. Nigdy jednak nie wykorzystuje się go do generowania sygnałów transakcyjnych, a jedynie do potwierdzenia zachodzących zmian rynkowych. Można go dołączyć do praktycznie każdej strategii inwestycyjnej, co czyni go wskaźnikiem niezwykle uniwersalnym, którego nie powinno zabraknąć w Twoim warsztacie inwestycyjnym.
Advantages of Volumes
- Shows current market situation
- Very useful in strategies based on price formations
- Responds to market changes practically in real time
Drawback of Volumes
- Possibility to effectively use it only in combination with other technical analysis tools