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Best Volume Indicators You Can't Afford To Miss (Volume-Based Trading For Forex & Stock Market) - YouTube
Channel: The Secret Mindset
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Very few traders or investors know how to
use volume to increase their profits and minimize
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risk, and this is very strange because volume
it is a very powerful tool but is often overlooked.
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Also, volume information can be found on any
trading platform, but strangely few traders
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or investors know how to use this information
to and maximize profits.
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Volume is a not a precise entry and exit tool,
however, with the help of some volume indicators,
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you can generate decent entry and exit signals
by combining them with price action or other
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tools.
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So, today, we鈥檒l talk about volume indicators,
you鈥檒l learn why they are such a useful
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tool and you鈥檒l discover what are the best
volume indicators to incorporate in your market
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analysis.
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Before we continue, if you are new to my channel,
make sure you subscribe, turn on the notifications
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and leave a like to show your support.
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Volume indicators are mathematical formulas
that are visually represented in almost all
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trading platforms.
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Each indicator uses a slightly different formula,
and therefore, you should find the indicator
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that works best for your particular market
approach.
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Volume indicators are not 100% required, but
they can help you a lot in your trading decision
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process.
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There are many volume indicators, and let鈥檚
discuss briefly about the most important ones.
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The first indicator, average volume.
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The most basic of all volume indicators is
the average one, and the calculation most
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commonly used for the stock markets is 50
days, although it may be reasonable to use
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the same period as the price average that
is being used.
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Then, if you are tracking the 200-day moving
average for example, a 200-day average of
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the volume would make sense.
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Anything less than 50 days is not likely to
be smooth.
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Another useful indicator, not known by many
trades is the volume momentum.
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The volume momentum indicator treats volume
as it would be price.
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For momentum, this means finding the change
in volume over a specific time interval; volume
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momentum basically measures the size of the
volume change relative to the starting value.
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The indicator sorts the volume based on negative
or positive closes.
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This indicator works in all timeframes but
is quite strong in the smaller ones to notice
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buying or selling power taking place.
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Force index is another great volume indicator
and represents the change in price multiplied
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by the daily volume.
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Force index is an oscillator that measures
the force, or power, of bulls behind particular
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market rallies and of bears behind every decline.
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The force index indicator will be positive
or negative if the price change was higher
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or lower.
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The three key components of the force index
are the direction of price change, the extent
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of the price change, and the trading volume.
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A higher market will result in a positive
force index, plotted above the center line;
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A lower market points to a negative force
index, below the center line.
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An unchanged market will return a force index
directly on the zero line.
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When the force index is used in conjunction
with a moving average, the resulting figure
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can accurately measure significant changes
in the power of bulls and bears.
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For timing entries and exits, a 2-day exponential
moving average (EMA) is recommended, to avoid
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unnecessary noise in the indicator.
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For longer-term analysis, a 13-day exponential
moving average could be used.
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Volume oscillator is another useful tool.
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The volume oscillator consists of two moving
averages of volume, one fast and one slow,
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the fast volume moving average being subtracted
from the slow moving average.
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An increase or decrease in price accompanied
by an increase in volume may be considered
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a sign of strength in the prevailing trend.
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Therefore, when the fast volume moving average
(default 14-period) is above the slow volume
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moving average (default 34-period), the volume
oscillator is above the zero line and may
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be confirming price direction, whether it
be up or down.
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An increase or decrease in price accompanied
by a decrease in volume may be considered
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a sign of weakness in the prevailing trend.
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Therefore, when the fast volume moving average
is below the slow volume moving average, the
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volume oscillator is below the zero line and
may be warning that the price direction is
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lacking strength and conviction.
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The next indicator is a familiar one, because
i mentioned it in my past videos, and that鈥檚
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the on balance volume.
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On balance volume (OBV) combines price and
volume in an attempt to determine whether
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price movements are strong or are weak and
lacking conviction.
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On balance volume has a simple calculation:
On an up day, the volume is added to the previous
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day's OBV
On a down day, the volume is subtracted from
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the previous day's OBV.
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Increasing or decreasing price accompanied
by increasing volume, suggests a confirmation
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of the price trend.
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Increasing or decreasing price accompanied
by decreasing volume, suggests that the price
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movement is weak and lacking conviction.
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The next indicator is the money flow index.
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The money flow index (MFI) is a momentum oscillator
that measures the strength of money flowing
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in and out of a security/stock.
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Money flow index is related to the relative
strength index, but with a twist.
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While RSI only incorporates prices, the money
flow index also incorporates the volume.
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As the money flow index (MFI) is quite similar
to RSI, the indicator can be used in a similar
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way.
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When the MFI is above 90, the price is considered
overbought and a reversal or pullback could
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be on the cards.
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When the MFI is below 10, the price is considered
oversold and a reversal or pullback might
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occur on the market.
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Since the money flow index uses volume in
its calculation, this indicator can be effective
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as a divergence indicator.
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If prices rise, but the volume on the up days
is less than the volume recorded on down days,
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then money is secretly pouring out of the
stock; this is called a bearish divergence.
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And similarly, when prices fall, but the volume
on the down days is less than the volume on
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up days, then money is flowing back into the
stock, and that鈥檚 a bullish divergence.
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Accumulation and distribution indicator is
next.
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If you watched by pivot points strategy, you
already know a few things about it.
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The A/D line compares the strength of the
close compared to the open divided by the
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trading range.
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It is also called money flow in some references.
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Accumulation distribution uses volume to confirm
price trends or warn of weak movements that
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could result in price reversals.
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Accumulation: volume is considered to be accumulated
when the day's close is higher than the previous
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day's closing price.
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Thus the term "accumulation day"
Distribution: volume is distributed when the
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day's close is lower than the previous day's
closing price.
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This is also known as a "distribution day"
The main use of the accumulation distribution
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line is to detect divergences between the
price movement and volume movement.
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Another indicator is the price volume trend.
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This indicator combines percentage price change
and volume in an attempt to confirm the strength
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of price trends or through divergences, warn
of weak price movements.
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Unlike other price-volume indicators, the
price volume trend takes into consideration
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the percentage increase or decrease in price,
rather than just simply adding or subtracting
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volume based on whether the current price
is higher than the previous day's price
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On an up day, the volume is multiplied by
the percentage price increase between the
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current close and the previous time-period's
close.
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This value is then added to the previous day's
price volume trend value.
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On a down day, the volume is multiplied by
the percentage price decrease between the
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current close and the previous time-period's
close.
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This value is then added to the previous day's
price volume trend value.
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Chaikin money flow is another volume indicator,
which determines if an instrument is under
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accumulation or distribution.
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The Chaikin money flow indicator compares
the closing price to the high-low range of
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the trading session.
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Chaikin money flow measures buying and selling
pressure over a set period of time.
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If the stock鈥檚 price closes near the high
of the session with increased volume, the
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Chaikin money flow increases in value
If the stock鈥檚 price closes near the low
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of the session with increased volume, the
Chaikin money flow decreases in value.
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Other useful indicators are the volume weighed
moving average, volume weighted average price
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and volume-weighted MACD, but these indicators
will be discussed separately in future videos.
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As always, if you got value from this this
video or learned something new, make sure
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you subscribe, turn on the notifications so
you don鈥檛 miss future uploads and leave
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us a like to show your support.
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Until next time.
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