A volume indicator is a technical analysis tool used by traders to measure the trading activity in a particular market or security. It represents the total number of shares, contracts, or transactions that have occurred during a specific time period. The volume indicator can be displayed as a line or bar chart, usually plotted below the price chart.
There are several different types of volume indicators, including:
- On-balance volume (OBV): OBV is a cumulative volume indicator that adds or subtracts volume based on whether the price has gone up or down. It is used to confirm trends and identify potential trend reversals.
- Chaikin Money Flow (CMF): CMF is an indicator that uses both price and volume data to measure buying and selling pressure. It is often used to confirm the strength of a trend.
- Volume Oscillator: Volume Oscillator is a momentum indicator that uses two moving averages of volume to determine changes in buying and selling pressure. It is used to identify overbought or oversold conditions.
- Accumulation/Distribution Line (A/D Line): A/D Line is a volume-based indicator that measures buying and selling pressure by analyzing the price and volume data of a security. It is used to confirm trends and identify potential trend reversals.
How to use volume indicator
Volume can be a useful tool for traders in a number of ways: