Volume Price Confirmation Indicator

What is the Volume Price Confirmation Indicator?

The Volume Price Confirmation Indicator (VPCI) is a technical analysis tool used in forex trading that combines price action and volume to identify trends and potential reversal points in the market. The VPCI compares the percentage change in price with the percentage change in volume to determine the strength of a trend. Traders use the VPCI to confirm price movements and spot divergence between price and volume, which may signal a trend reversal. By providing a unique perspective on the interplay between price and volume, the VPCI can be a valuable addition to a trader’s toolbox.

Volume Price Confirmation Indicator Strategy

One strategy for using the Volume Price Confirmation Indicator (VPCI) in forex trading is to identify trend confirmation and potential reversals. Here are the steps to implement this strategy:

  • Determine the trend direction: Use price charts to identify the prevailing trend in the currency pair you are trading. You can use moving averages, trend lines to help you identify the trend.
  • Observe the VPCI: Once you have identified the trend, look at the VPCI to confirm it. If the VPCI is moving in the same direction as the trend, it confirms the trend is strong. If the VPCI is diverging from the trend, it may signal a potential reversal.
  • Look for divergence: Keep an eye out for divergences between the VPCI and price. If the VPCI is trending up while price is trending down, it may be a sign of a reversal. Conversely, if the VPCI is trending down while price is trending up, it could indicate a potential reversal in the opposite direction.

Buy Signal

Volume Price Confirmation Indicator Buy Signal
Volume Price Confirmation Indicator Buy Signal

Here are the steps to identify a buy signal using the Volume Price Confirmation Indicator (VPCI) in forex trading:

  • Identify an uptrend in the currency pair you are trading using price charts and technical analysis tools.
  • Look for a bullish divergence between the VPCI and price action. This occurs when the price is decreasing, but the VPCI is increasing, indicating a potential reversal.
  • Place a buy order when you see the bullish divergence and indicators confirm the signal.
  • Take returns when the price reaches a predetermined level or when you see a bearish divergence between the VPCI and price action.

Sell Signal

Volume Price Confirmation Indicator Sell Signal
Volume Price Confirmation Indicator Sell Signal

Here are the steps to identify a sell signal using the Volume Price Confirmation Indicator (VPCI) in forex trading:

  • Identify a downtrend in the currency pair you are trading using price charts and technical analysis tools.
  • Look for a bearish divergence between the VPCI and price action. This occurs when the price is increasing, but the VPCI is decreasing, indicating a potential reversal.
  • Place a sell order when you see the bearish divergence and indicators confirm the signal.
  • Take returns when the price reaches a predetermined level or when you see a bullish divergence between the VPCI and price action.

Volume Price Confirmation Indicator Pros & Cons

Pros

  • Provides a unique perspective: The VPCI combines price and volume data to provide traders with a unique perspective on market trends and potential reversals.
  • Confirms price movements: By confirming price movements with volume data, the VPCI can help traders identify whether a trend is strong or weak.
  • Spot divergence: Traders can use the VPCI to identify divergences between price and volume, which can signal a potential trend reversal.

Cons

  • May produce false signals: Like any technical indicator, the VPCI can produce false signals, leading to loses for traders who rely solely on this indicator.
  • Can be lagging: The VPCI relies on historical volume data, which can be lagging, making it less useful for short-term traders.
  • Not a standalone indicator: The VPCI should not be used as a standalone indicator but rather as part of a larger trading strategy.

Conclusion

The Volume Price Confirmation Indicator (VPCI) can be a useful tool for forex traders looking to confirm market trends and potential reversals. By combining price and volume data, the VPCI provides a unique perspective on market movements. However, traders should be aware of the potential for false signals and lagging data and should always confirm signals produced by the VPCI with indicators and technical analysis tools.

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