Volume Indicators Masterclass Part 1VOLUME INDICATORS
Volume is one piece of information that is often neglected by many market players, especially beginners.
However, learning to interpret volume brings many advantages and could be of tremendous help when it comes to analyzing the markets. The usage of volume indicators has long been restricted to just the Forex Markets. Thereby in the Volume Indicator Masterclass, we will be looking in-depth for a few volume indicators.
Traders often use volume which measures the number of shares traded during a particular time period as a way to assess the significance of changes in a security’s price.
Traders rely on it as a key metric because it lets them know the liquidity level of an asset, and how easily they can get into or out of a position close to the current price, which can be a moving target.
Volume analysis is a technique used to determine the trades you will make by discovering the relationships between volume and prices. In order words, it shows how many times the security has been bought or sold over a given timeframe. The time frame can be one minute, four hours, one day, or anything.
The volume transacted in the given timeframe is represented as a bar, which can be color-coded. The color of the bar shows whether the security’s price closes up or down.
A green bar is generally used to show that the security closed higher during the trading session
A red bar is used to indicate that the security closed lower
The height of the bar shows whether there’s an increase or a decrease in the volume of the security transacted a taller bar shows a higher volume while a shorter bar shows a lower volume.
Trend Confirmation :
If the volume increase with an increase in price or with a decrease in price, it indicates a strong buying or selling pressure.
Trend Non-Confirmation :
If the volume decrease with an increase in price or with a decrease in price, it indicates a weak buying or selling pressure.
There are various Volume Indicators, out of which we will be discussing the Money Flow Index in this Masterclass.
Money Flow Index
The Money Flow Index (MFI) is an oscillator that uses both price and volume to measure buying and selling pressure.
The indicator is synonymous with “volume-weighted RSI” as it integrates volume and mirrors the relative strength index (RSI) with respect to its mathematical formulation and categorical classification as a momentum oscillator MFI.
Calculation of the Money Flow Index:
Typical Price: (High + Low + Close) / 3
Money Flow: Typical Price x Volume
Positive Money Flow: The Money Flow on days where the Typical Price is greater than the previous day’s Typical Price.
Negative Money Flow: The Money Flow on days where the Typical Price is less than the previous day’s Typical Price.
Money Flow Ratio: 14-Period Positive Money Flow / 14-Period Negative Money Flow
Money Flow Index: 100 Money Flow Ratio / (1 + Money Flow Ratio)
Signal Generation
BUY When Money Flow Index crosses up 20 i.e. from the oversold region
SELL When Money Flow Index crosses down 80 i.e. from the overbought region
There a lot of more interesting Volume Indicators that can be used, about which we'll be talking in the next Masterclass of Volume Indicator.
STAY TUNED!
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