Today we will take a closer look at 2 volume-based indicators. These will be the Net Volume indicator and the Volume Oscillator. Traders have to take multiple factors into account during trading sessions. They have to observe price action, indicators if they are using such, chart patterns etc. And there is also an element called volume. How to use volume indicators in your trading? Today we will look into it.
|→Volume-based indicators, like the Net Volume indicator and the Volume Oscillator, can help traders gauge market sentiment and assess future price behavior.|
|→Understanding trade volume can help traders make informed decisions, particularly when price and volume are not coherent.|
|→Combining volume indicators with other technical analysis tools can enhance the accuracy and effectiveness of trading strategies.|
Trade volume is simply the number of contracts or securities traded over a certain period of time. It shows whether traders are enthusiastic to buy or sell rather. Knowing the volume can help you make trading decisions. When the price and volume are not coherent, you may expect a change in the market direction is coming.
There exist indicators that measure trade volume and thus, they save you the time you would spend to do it by yourself. On the IQ Option platform, you will find, among others, the Volume Oscillator and the Net Volume.
The Volume Oscillator
This oscillator is based on the moving averages. There are two of them taken into calculations. One has typically a period of 14 days or weeks and the second one of 28. The Volume Oscillator subtracts the slow volume (Long Cycle) moving average (MA28) from the fast volume (Short Cycle) moving average (MA14). The results are presented in a form of a line.
A line moves around the 0 line. It gives positive readings above the middle line and negative below it. Positive readings are being seen as an indication of a strong movement.
High volume together with the price increase or decrease is always bearish. When the volume drops it can suggest the upcoming change.
What is the Net Volume indicator?
Net Volume indicator measures the volume and indicates whether the market sentiment is rather bullish or bearish.
Net Volume indicator calculation
Of course, you do not have to determine the value of the indicator yourself. The IQ Option platform gives you ready-to-use tools. However, it is worth knowing how the Net Volume indicator is calculated. Basically, it is downtick volume minus uptick volume over a single period of time. It is shown beneath the price chart.
Positive readings give information about the bullish upswing and negative readings about the bearish downswing.
The Net Volume indicator can be used together with some other indicators, support and resistance levels or with chart patterns. It may also be interesting to combine the Net Volume indicator with EMA averages. The Net Volume indicator can be used as a sentiment confirmation in cases of crossing of 2 averages or price and moving average.
Pros and Cons of Volume-Based Indicators👍👎
- Provide insights into market sentiment and potential price movements 📈
- Can be combined with other technical analysis tools for improved accuracy 🎯
- Can help traders identify potential trend reversals and entry/exit points 🔄
- May generate false signals or provide unclear information 😕
- Not always effective in isolation – best used in combination with other tools 🧰
- Can be less effective in low-liquidity markets or during periods of low trading activity 📉
|Net Volume Indicator||Volume Oscillator|
|Measures volume to determine bullish or bearish market sentiment||Based on moving averages, detects strong market movements|
|Downtick volume minus uptick volume over a single period of time||Subtracts slow volume moving average (MA28) from fast volume moving average (MA14)|
|Positive readings indicate bullish upswing, negative readings indicate bearish downswing||Positive readings above the 0 line indicate strong movement, negative readings below the 0 line suggest weak movement|
Conclusion on Net Volume indicator and Volume Oscillator
Volume indicators reveal market interest in certain security. It can be helpful in your trading to know it as you can try to assess the future behaviour of the price.
Use some additional tools to discover the best points to enter transactions. It is always good to get confirmation before you open a position.
Trading is related to risks and that is why I suggest you use the IQ Option demo account often. You can test new indicators and strategies there. And there is always a possibility to recharge it with more virtual money when you experience too many losses. This way you may learn what brings you profits and what does not.
Have you traded with the Net Volume indicator or Volume Oscillator? Don't forget to share your insights in the comments section below the post.
Wish you good luck!
Q&A: Volume-Based Indicators🔎
- Q: How do volume-based indicators help traders make decisions?
- A: They provide insights into market sentiment, price behavior, and potential trend reversals, helping traders determine entry and exit points.
- Q: Can volume indicators be used in isolation for effective trading strategies?
- A: Not always. Volume indicators are often more effective when combined with other technical analysis tools, such as moving averages or chart patterns.
- Q: What can high trade volume along with price increase or decrease indicate?
- A: High volume along with price increase or decrease is usually bearish, and a drop in volume may suggest an upcoming change in market direction.
- Q: How does the Net Volume indicator differ from the Volume Oscillator?
- A: The Net Volume indicator measures volume to gauge bullish or bearish market sentiment, while the Volume Oscillator is based on moving averages and detects strong market movements.
- Q: What is the primary purpose of using volume indicators in trading?
- A: Volume indicators are used to reveal market interest in a security, helping traders assess future price behavior and make more informed decisions.
GENERAL RISK WARNING
Kindly note that this article does not provide any investment advice. The information presented regarding past events or potential future developments is solely an opinion and cannot be guaranteed as factual, including the provided examples. We caution readers accordingly.
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