What is Volume?
The represents all the recorded trades for a security that occurs in a given time interval. It is a measurement of the participation, enthusiasm, and interest in a given security. Think of as the force that drives the market. substantiates, energizes, and empowers price. When increases, it confirms price direction; when decreases, it contradicts price direction.
In theory, increases in generally precede significant price movements. However, If the price is rising in an uptrend but the is reducing or unchanged, it may show that there’s little interest in the security, and the price may reverse.
A high usually indicates more interest in the security and the presence of institutional traders. However, a rapidly rising price in an uptrend accompanied by a huge may be a sign of exhaustion.
Traders usually look for breaks of to enter positions. When security break critical levels without , you should consider the breakout suspect and prime for a reversal off the highs/lows
spikes are often the result of news-driven events. spike will often lead to sharp reversals since the moves are unsustainable due to the imbalance of
note: there’s no centralized exchange where trades are recorded, so the data represents what happens at a particular exchange only
In most charting platforms, the indicator is presented as color-coded bars, green if the security closes up and red if the security closed lower, where the height of the bars show the amount of the recorded trades
Within this study, Relative Volume, Volume Weighted Bars and Volume Moving Average are presented, where Relative relates current trading to past trading over long period, Weighted Bars presents price bars colored based on short period past trading average, and Moving Average is average of over shot period
Relative is presented as color-coded bars similar to regular indicator but uses four color codes instead two. Notable increases of are presented in green and red while average values with back and gray, hence adding ability to emphasis notable increases in the . It is kind of a like a radar for how "in-play" a security is. Users are allowed to change the threshold, default value is set to Fibonacci golden ration standard deviation away from its moving average.
Weighted Bars, a study of Kıvanç Özbilgiç, aims to present if price movements are supported by . Weighted Bars are calculated based on shot period moving average which will reflect more recent changes in . Price actions with high will be displayed with darker colors, average values will remain as they are and low values will be indicated with lighter colors.
Moving Average, Is short period moving average, aims to display visually the changes. Please not that Relative bars are calculated based on standard deviation of long moving average.
Apart from the itself, your ability to assess what is telling you in conjunction with price action can be a key factor in your ability to turn a profit in the market. It makes little sense to analyze the alone. To correctly interpret the data, it shall be seen in the light of what the price is doing. there are a lot of other indicators that are based on the data as well as price action. Analysing those indicators has always helped traders and investors to better understand what is happening in the market.
Here are the ones adapted with this study. Some of them used as a source for our aim, some adapted as they are with slight changes to fit visually to this study and please note that the numerical presentation may differ from their regular use
• Divergence Indicator
The indicator, is a indicator that relates flow to changes in a security’s price. It uses a cumulative total of positive and negative trading to predict the direction of price. The OBV is a volume-based momentum oscillator, so it is a leading indicator — it changes direction before the price
Granville, creator of OBV, proposed the theory that changes in precede price movements in a measurable way. He believed that was the main force behind major market moves and thought of OBV’s prediction of price changes as a compressed spring that expands rapidly when released.
It is believed that the OBV shows the interactions between the institutional and retail traders in the market
If the price makes a new high, the OBV should also make a new high. If the OBV makes a lower high when the price makes a higher high, there’s a classical divergence — indicating that only the retail traders are buying. Another type of divergence occurs when the price remains relatively quiet and fails to make a higher high but the OBV soars higher than the previous high — indicating that the institutional traders are accumulating short positions. On the other hand, if the price makes a lower low and the OBV makes a higher low, there is a classical , showing that the institutional traders don’t believe in that move
With this study, Momentum and Acceleration (optional) of OBV is calculated and presented, where momentum is most commonly referred to as a rate and measures the acceleration of the price and/or of a security. It is also referred to as a indicator and oscillator that is able to determine market trends.
Additionally, smoothing functionality with Least Squares Method is added
Divergences especially, should always be noted as a possible reversal in the current trend, so the divergence indicator is adapted with this study where the Momentum of OBV is assumed as Oscillator with similar usages as to . Divergence is most often used to track and analyze the momentum in an asset’s price and the odds of a price reversal within the current trend. The divergence indicator warns traders and technical analysts of changes in a price/ trend, oftentimes that it is weakening or changing direction.
The is a statistical measure of the strength of the relationship between the relative movements of two variables. A correlation of -1.0 shows a perfect negative correlation, while a correlation of 1.0 shows a perfect positive correlation. A correlation of 0.0 shows no linear relationship between the movement of the two variables. In other words, the closer the is to 1.0, indicates the instruments will move up and down together as it is mostly expected with and price. So the Indicator aims to display when the price and ( ) is in correlation and when not. With this study blue represent positive correlation while orange negative correlation. The strength of the correlation is determined by the width of the bands, to emphasis the effect horizontal lines are drawn with values set to 0.5 and -0.5. the values above 0.5 (or below -0.5) shows stronger correlation.
Chaikin Money Flow, provide optionally as a companion indicator
The indicator ( CMF ) is a indicator that measures the over a chosen period. The is a measure of the and where the price closed relative to the trading session’s range. It comes from the idea that buying pressure is indicated by a rising and recurrent closes in the upper part of the session’s price range while selling pressure is demonstrated by an increasing and repeated closes in the lower part of the price range.
Both buying and selling pressures are accompanied by an increase in , but the location of the closing prices are in accordance with the direction of price
Special thanks to @InvestCHK and @hjsjshs, who have enormously contributed while preparing this study
Trading success is all about following your trading strategy and the indicators should fit within your trading strategy, and not to be traded upon solely
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Based on observation and tests performed by @InvestCHK, we come to the fact that if we could get an alert as early as possible when notable increases in volume takes place it would save us a lot of time having to constantly stare at charts. Once we get an alert we could check it out and at that point we would be able to decide whether or not to enter a position based on everything else we are seeing
So, this update aims to add notification ability for potential trading opportunities, where the conditions of the alerts can be adjusted by users based on their needs.
How to benefit for Relative Volume Alerts and suggestions of Alert settings that have been tested with a promising results
The following variables are the ones related with Relative Volume that will allow users to made customizable alerts on their own needs.
- Relative Volume Strength Threshold and
- Alert Settings : Number of Consecutive Notable Volume Changes
Most important setting is selecting number of bars depending on the timeframe, where # of bars determines the count of consecutive notable volume changes (N consecutive dark green bars, or N consecutive dark red bars)
In timeframes lower than 5m it is suggested to set 3 (give a try with 2)
In timeframes between 30m/15m it is suggested to set 2
And higher timeframes it is suggested to have it set to 1
The alert will not suggested buy or sell explicitly, it will be a single alert with massage “trading probability” it could be eighter buy or sell trading opportunity or even none, where you have to decide by confirming the price actions or by other indicators that are involved in your strategy
Important note, the aim is to get the alert as early as possible so depending on your setting it may be subject to repaint when the number of bars is grater that 1. if you want to be alerted in non-repaint case, than you should be creating with “Once per Bar Close” option selected (especially if you want to run an alert to be sent to a bot)
Samples from the recent strong downtrend and the indicator was all over it
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