Volume Rate of Change Indicator

The Volume Rate of Change (VROC) indicator was developed by J. Welles Wilder Jr. in 1978 and is officially used in the market as a technical analysis tool for Forex trading.

What is the Volume Rate of Change (VROC) indicator?

The Volume Rate of Change indicator, or VROC, is a technical analysis tool used in Forex trading to measure the rate of change of volume over a specific period of time. This indicator is used to identify potential buying and selling opportunities in the market.

Volume Rate of Change Indicator MT4
Volume Rate of Change Indicator MT4

What are the key Features of the Directional Movement Indicator?

  • VROC measures the rate of change of volume, as opposed to price.
  • It is a momentum indicator, which means it helps traders identify the strength and direction of a trend.
  • It can be used in combination with other indicators or analysis to confirm potential trading opportunities.
  • The VROC indicator measures the rate of change of volume over a specified period of time, providing insight into the strength and direction of a trend.

However, for those new to technical analysis, it’s important to note that not all of these movements are significant, as they are not always supported by trading volume. Technical analysts pay attention not only to the movements in forex prices but also the volume of trades that drive those price movements.

Utilizing the Volume Rate of Change Indicator in Trading

The Volume Rate of Change (VROC) indicator is a widely used technical tool in trading, but its interpretation may vary among traders.

One important aspect to consider when using the VROC indicator is the trading sessions time where traders are usually using the indicator during session intercept with the other one like Newyork and Tokyo sessions.

VROC is often used as a means of confirmation or rejection of a trade decision made based on analyzing price indicators. Traders often look for indicators and patterns that are supported by high or increasing trade volumes, as it suggests that the price action is driven by conscious market activity, rather than just random fluctuations.

The VROC indicator is an important technical tool that all traders should be familiar with, as it is commonly used in many trading strategies. Even though some strategies may not use the VROC indicator or alternative volume indicators, it can still add value to any analysis.

Traders who primarily rely on fundamental analysis for their trades also use the VROC indicator when entering and exiting long-term positions to ensure they find the best price and avoid slippage.

Volume Rate of Change Strategy

Buy Signal

  • A buy signal is generated when the VROC indicator crosses above the zero line, indicating an increase in volume and potential bullish momentum.
Volume Rate of Change Indicator Buy Signal
Volume Rate of Change Indicator Buy Signal

Sell Signal

  • When the VROC indicator falls below the zero line, it suggests a decrease in trading volume and potential bearish market conditions, this is when a sell signal is generated.
Volume Rate of Change Indicator Sell Signal
Volume Rate of Change Indicator Sell Signal

The Significance of Volume in Trading

In trading, volume represents the number of shares traded, bought, and sold during a specific time frame, volume analysis is a vital aspect of technical analysis as it provides insight into the forces driving changes in price. For instance, when a key moving average indicator such as a death cross is breached, it’s usually accompanied by a spike in trading volume, as many traders adjust their positions simultaneously. However, if a death cross or similar price-based indicator is not accompanied by a significant increase in trading volume, it suggests that the breakout in price may not happen.

On the other hand, low trade volume can also lead to significant price changes as small trade orders can move the price substantially, as a result, many traders incorporate volume indicators into their strategies alongside price indicators to confirm or disprove a trading decision based on price analysis.

Volume Rate of Change indicator Pros & Cons

Pros

  • Can provide early signals for potential trend changes.
  • Can confirm trading opportunities identified through other analysis.
  • Can be used in combination with other indicators for added confirmation.

Cons

  • May produce false signals in choppy or low-volume markets.
  • Does not take into account the price of the currency pair.
  • Can be affected by sudden and large changes in volume, which can lead to false signals.

Conclusion

The Volume Rate of Change (VROC) indicator is a technical analysis tool that helps traders identify potential opportunities in the Forex market, the VROC indicator measures the rate of change of volume over a specific period of time, providing insight into the strength and direction of a trend. It is important to note that not all price movements are significant, as they are not always supported by trading volume.

When using the VROC indicator for trading, it is important to consider the number of periods used to calculate it. Many traders prefer using a 10-day or 20-day VROC, as it represents a suitable time frame for day trading strategies. The VROC indicator is often used as a form of confirmation or denial of a trade decision made based on analyzing price indicators. Traders look for indicators and patterns that are supported by high or increasing trade volumes, as it suggests that the price action is driven by conscious market activity, rather than just random fluctuations.