Cumulative Volume Indicator

The Cumulative Volume Indicator assists traders in monitoring market volumes in order to determine the strength of current market trends. Unlike some other volume indicators, it employs its own oscillator window, which clearly distinguishes between the market’s buying and selling forces. The cumulative volume indicator is a technical indicator which calculates the total volume of a security over a given time period.

What is the Cumulative Volume Indicator?

The Cumulative Volume Indicator is an indicator that uses a very simple method to show the volume status of the market, making it suitable for traders of all levels of experience. Furthermore, this volume tool can be used on all types of forex currency pairs, as well as multiple time frame charts. It can produce buy and sell signals as well as confirm other trading signals. While the CVI is not perfect, it can be a useful tool for forex traders looking for a competitive advantage in the market.

Setting up the Cumulative Volume Indicator
Setting up the Cumulative Volume Indicator

Cumulative Volume Strategy

In the Cumulative Volume Strategy, the oscillator indicator presents volume data in an interesting way. It shows the total volume for the selected time period.  Volume data can be represented in a variety of ways, volumes can be displayed as relative or absolute values, combined or separated.

The Cumulative Volume Indicator compares the bullish and bearish forces of the market over the last 21 days of data. The length period, however, can be changed or modified at any time to meet your needs. When the volume bars turn positive, it means that demand exceeds supply and buyers have control of the market. Negative volume, on the other hand, represents a greater supply of the specific financial asset compared to its demand and confirms the current market trend’s bearish strength. The cumulative volume indicator is calculated by adding all previous trading volumes and dividing it by the total number of trades. The calculated value is then plotted on a graph, with higher values indicating a stronger trend. When the indicator reaches a certain level, it can be used to signal the start or end of a trade.

Buy Signal

The following could be your checklist for a buy trade:

  • When the CVI plots positive volume bars.
  • When the indicator is above the zero line and the price bar closes as a bullish bar.

Once these two events occur:

  • You could open a buy position after the positive bars are plotted and you get your signal confirmation.
  • You could set your stop loss just below the nearest swing low.
  • You could set your take profit at the nearest resistance zone or you could exit trade when the CVI plots negative volume bars.
  • For good risk management, I would only consider trades with a risk to reward ratio of at least 1:2.
Cumulative Volume Indicator Buy Setup
Cumulative Volume Indicator Buy Setup

Sell Signal

The following could be your checklist for a sell trade:

  • When the CVI plots negative volume bars.
  • When the indicator is below the zero line and the price bar closes as a bearish bar.

Once these two events occur:

  • You could open a sell position after the negative bars are plotted and you get your signal confirmation.
  • You could set your stop loss just above the nearest swing high.
  • You could set your take profit at the nearest support zone or you could exit trade when the CVI plots positive volume bars.
  • For good risk management, I would only consider trades with a risk to reward ratio of at least 1:2.
Cumulative Volume Indicator Sell Setup
Cumulative Volume Indicator Sell Setup

Cumulative Volume Pros & Cons

Pros

  • The Cumulative Volume Indicator helps show the traders how strong the trend of a market is.
  • By using a simple method to demonstrate the volume status of the market, this indicator can be used by traders of all levels of experience.

Cons

  • The indicator functions with volume data, but there could be inaccuracy of volume data presented by the indicator.
  • The Cumulative Volume Indicator may not meet the trader’s expectations in a consolidating market, especially one with a narrow range.

Conclusion

The Cumulative Volume Indicator (CVI) is a technical analysis tool that traders use to calculate the total volume of an asset over a given time period. This can be useful in determining when there is a lot of interest in a security, which could indicate a price increase or decrease. The CVI can be used on all time frames, and its main purpose is to transform the accumulated history data.

This indicator allows you to detect various peculiarities and patterns in price dynamics that are otherwise invisible to the naked eye. Traders can assume further price movement and adjust their strategy based on this information but shouldn’t depend solely on the signals given by this indicator.