Volume Moving Average Indicator

Technical indicators, many traders may agree, are at the heart of any trading system. Traders use them to estimate future market movements and evaluate past price trends and patterns in order to make informed trades. There are varieties of indicators available to traders today, one of these indicators is the Volume Moving Average (VMA).

What is the Volume Moving Average Indicator?

The Volume Moving Average (VMA) indicator is a technical analysis tool that is used to analyze trends in trading volume. It is similar to a standard moving average, but instead of tracking the price of an asset, it tracks the volume of trades. The VMA is calculated by taking the total volume of trades over a given period and dividing it by the number of periods. For example, if you are using a 10-day VMA, you would add up the total volume over the last 10 days and divide it by 10.

Traders use the VMA to identify changes in trading volume and to confirm the strength of a trend. A rising VMA indicates that trading volume is increasing, which can be a signal that the trend is gaining strength. On the other hand, a falling VMA can indicate that trading volume is decreasing, which may suggest that the trend is losing momentum.

Setting up the Volume Moving Average Indicator
Setting up the Volume Moving Average Indicator

Volume Moving Average Strategy

The Volume Moving Average (VMA) indicator is a technical analysis tool that calculates the average volume of a security over a specified period of time. It is similar to other moving average indicators, but instead of looking at the price of the security, it looks at the volume of trades. The VMA is calculated by taking the total volume of a security over a specific time period and dividing it by the number of periods. For example, a 20-day VMA would calculate the average volume over the past 20 trading days. The VMA is often used by traders and analysts to identify trends in trading volume, which can provide insight into the underlying strength or weakness of a security. A rising VMA may indicate increasing demand for the security, while a declining VMA may indicate decreasing demand.

The Volume MA Indicator is a straightforward indicator that employs the Moving Average to determine trend direction. As a kind of MA, the indicator employs a SMA. The indicator displays red and green bars as well as the signal line in the window below. The signal line operates in the same manner as the SMA. Red bars represent a downward trend, whereas green bars represent an upward trend.

Buy Signal

This could be your checklist for a buy trade:

  • When the indicator displays a green bar.

Once this event occurs:

  • You could open a buy position after you confirm your entry with bullish candlestick patterns.
  • 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 indicator displays a red bar.
  • For good risk management, I would only consider trades with a risk to reward ratio of at least 1:2.
Volume Moving Average Indicator Buy Setup
Volume Moving Average Indicator Buy Setup

Sell Signal

This could be your checklist for a sell trade:

  • When the indicator displays a red bar.

Once this event occurs:

  • You could open a sell position after you confirm your entry with bearish candlestick patterns.
  • 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 indicator displays a green bar.
  • For good risk management, I would only consider trades with a risk to reward ratio of at least 1:2.
Volume Moving Average Indicator Sell Setup
Volume Moving Average Indicator Sell Setup

Volume Moving Average Pros & Cons

Pros

  • The Volume Moving Average Indicator can be used to identify changes in trading volume of an asset.
  • This indicator can be used by traders to confirm the strength of the prevailing trend of an asset.

Cons

  • Like all moving average indicators, the VMA can be prone to lag or delayed signals, particularly during periods of rapid price or volume changes. This can result in traders missing out on potential trading opportunities or entering/exiting positions too late.
  • The accuracy and usefulness of the VMA is dependent on the accuracy and reliability of the volume data used to calculate it. If there are errors or inconsistencies in the volume data, this can lead to inaccurate VMA calculations and potentially misleading trading signals.

Conclusion

The VMA Indicator could be worth adding to your trading toolbox. It could be advantageous for traders who consider volume for their trades. The VMA can be used in conjunction with other technical indicators, such as the moving average convergence divergence (MACD) or the relative strength index (RSI), to help confirm signals and identify potential trade opportunities. It’s important to note that the VMA may not be good enough as a standalone indicator and should be used in conjunction with other technical and fundamental analysis tools to make informed trading decisions.

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