Volume momentum gives much more information than a simple volume MA. It does require interpretation however, since increasing volume momentum can indicate strengthening of both an up or down movement. Volume momentum peaks and bottoms are also interesting as they often lead to shifts in price movement.
In order to help interpretation, I color rising volume momentum using price momentum. Green indicates volume-supported upward price movement and red indicates volume-supported downward price movement.
As to falling volume momentum, in my world view it indicates exhaustion or disinterest which requires prior price activity to be interpreted. In strong and steady price movements it can indicate a mere pause. After high price volatility often signalling a top or bottom, falling volume momentum often leads reversals.
Features
Two optional MAs on the main volume momentum line, with crosses on the short MA.
A higher time frame line (shown by default), with the higher time frame being a user-defined multiple of the current chart’s interval. The default is 8, so that a 15m chart will also show a 2h volume momentum.
Two Markers
Tops/Bottoms (marker 1): these occur on high/low price momentum pivots situated in favorable regions, combined with volume momentum peaks.
Pauses/Reversals (marker 2): these simply identify volume momentum high pivots that often lead to shifts in price movement. They are not directional. You can choose to color bars where these markers occur (shown on chart).
You can show only long or short markers.
Alerts You can define alerts on any combination of markers you configure. After defining the markers you want the alert to trigger on, make sure you are on the interval you want the alert to be monitoring at, then create the alert, select Volume Momentum, use the default “Configured Markers” alert condition and choose your triggering window (usually “Once Per Bar Close”). Once the alert is created, you can change the indicator's inputs with no effect on the alert.
Use Cases
The higher time frame line is very useful in situating current volume activity in a larger context.
I consider all peaks in volume momentum as potentially significant events.
When looking for an entry, I will often wait for the descending volume momentum to change direction at a shorter interval, using price momentum to confirm that increasing volume is working in my favor.
Volume momentum variations can often inform otherwise insignificant price momentum activity.
Here I use price momentum to color volume momentum; inversely, I also use volume momentum to color my momentum indicator.
Notes
Where the markers on my Volume Columns indicator focus on confirming strength of price movements, this indicators’ markers try to focus on shifts in price movement.
My volume momentum is calculated using a smoother variant of CCI which came to be known as WaveTrend.
From event of XAU/USD drop sharply recently, I have compared actually price and volume of 2 significant sell with volume momentum however I still unclear on what the interpretation of the VM1
Event 1 ) the high mean the volume keep added up at the same as price change ? Sell volume is much more than Buy volume but why the increasing in red is less than the green line ?
Event 2 ) the higher sell volume and price was dropped sharply however there is no red line happened during that period. Why ?
@lertsak, The color of VM1 is determined by conditions on a CCI calculation of length 20 on `close`. When that CCI rises/falls for two consecutive bars, VM1 is colored green/red. So the color of VM1 has nothing to do with VM1 itself. The color is determined using price momentum to help the interpretation of VM1, which will always rise when volume is rising, regardless of price direction. VM1 helps you detect variation in volume—that's it. It does not contain directional information on price except for its color. Here's a chart showing the CCI used internally to color VM1. You don't see this line in the "Volume Momentum" display, but its in the code.
lertsak
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@LucF, Thank you for clarification. However, the increasing rate of VM seems slower than actually volume increase e.g.
1) In event 1, the sell volume is much larger than buy volume but why the sell volume is increased as a slower rate
2) Comparing Event 2 with Event 1, the sell volume of event 2 is much larger BUT why VM@ sell volume of event 2 has a lower peak than VM@ sell volume in event 1
LucF
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@lertsak, VM1 uses the Wave Trend calculation on volume, which is a smoothed form of CCI, which itself measures the distance between a value and its average. VM1 is thus a ratio, so it depends on more than just the current volume. You can read about the CCI calculations here: school.stockcharts.com/doku.php?id=technical_indicators:commodity_channel_index_cci where you can also see examples where the CCI line's values are not proportional to price. Higher price peaks do not necessarily produce higher CCI values. It's just the nature of the beast. The exact formula used in the code is:
1) When looking for an entry, I will often wait for the descending volume momentum to change direction at a shorter interval, using price momentum to confirm that increasing volume is working in my favor.
Meaning that you use
- multi timeframe for 2 volume momentum indicators ? and
- Also, price momentum to confirm is a green or red color line in volume momentum ?
2) What is your Exit signal on this ? Since sometime the price momentum might last for 2 bars which the color is only just happened 2nd bar. Then there is no price momentum color prolong futher
Many Thanks
LucF
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@lertsak, Thx for the good words. Volume indicators usually require interpretation that is heavily dependent on the particular markets you trade. On intraday Forex markets, for example, we are subject to cyclical patterns caused by the different sessions, so in that context, we will often be analyzing differences in cycles. On intraday stocks, you are working with a small fraction (sometimes only a few % points) of the total volume that will be reported at the end of the day, and with the typical opening/closing boosts in volume, so interpretation there should accommodate that. Because of this I think it's somewhat risky to discuss generic volume momentum patterns.
Also, while volume indicators will quite frequently show patterns leading price movement, I think it's best to use them as confirmation tools and look for congruence with other reads on price action and volatility, for example. That is why markers 1 and 3 on this indicator add conditions using price information to their triggering mechanism.
So to your questions:
1. Yes, using a HTF's contexts is in my opinion a good idea. You get this with VM4.
2. Yes, the color of the momentum line shows where price momentum matches increasing volume momentum.
3. I wouldn't use this indicator for exits because it's very difficult to distinguish pauses from exhaustion. What I did in some systems was to tighten stops on decreasing volume momentum, trying to achieve a compromise between not getting stopped out of pauses and minimizing losses on reversals.
LucF
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@lertsak, For the analysis of real relative volume, so comparing time-based cumulative volume to its historical values, something like this tool will be far superior in conditions like the Forex markets mentioned in my previous answer, btw: tradingview.com/script/n0f50JKv-Relative-Volume-at-Time/
lertsak
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@LucF, Wow Thank you for you well explained answer in Big Picture and Detail.
1) Would love to see your point of view on nature of different asset e.g. Forex, Gold, Bitcoin and Stock ? In my humble knowledge, I think they are all move in stage but different timeframe e.g
- Index (50-70 Years of economic cycle)
- Gold (5-10 Years) has intrinsic value but closely tight with inflation rate
- BTC (1-2 Years) no intrinsic value yet, hard to predict, still at the beginning of the stage
- Stock (1-2 Years) is the easiest asset to find the pattern and cycle because it has intrinsic value ?
- Forex (Day) is controlled buy central bank and has no intrinsic value
PS : stage here is like Wycoff stage or Stan Weinstein stage
2) So as you mentioned, We should use Relative Volume as the latest post on Forex market and how about XAUUSD and BTCUSDT ? On the other hand, we should using Volume Momentum with Stock ?
3) Markers 1 and 2 ? not 1 and 3 ?
4) I did try comparing TF 1h vs 4h. I found that @TF1h VM4 at 4x of VM1 is not in exactly the same trend as VM1@TF4h. Should it be the same ? or No color on VM1@TF4h is a downtrend on VM4@TF1h ? since VM4 has no price confirmation (no color period)
LucF
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@lertsak,
1. I don't share analysis on markets because points of view depend on trader and trade objectives, which should vary across traders and in time. Also, I do not use market outlooks from others in my trading practice, so the last thing I'd want would be to "pollute" the practice of others with mine )
2. XAUUSD is another good example of a market with cyclical intraday volume patterns, so where using relative volume is much better, I think. BTCUSDT data varies from exchange to exchange but in my experience, crypto markets are the ones where volume indies perform the best because volume is not as cyclical there.
3. y sry. I'm using a version of the indicator with more markers and hadn't realized I didn't update it. I'll update it in the near future. So in its current state, marker 1 is the one that also uses price.
4. One way HTF information can be used is to determine the dominant trend. So if you're looking for increasing volume momentum, you could first limit yourself to instances where it is increasing at the HTF, and then use the chart's TF to find corroborating increasing volume momentum at the chart's TF. You could also use HTF information to spot reversals, but that's much riskier. In that case you would be looking for a potential bottom at the HTF, and for potential upswings from there at the chart's TF.
lertsak
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@LucF, Thank you for educating me here. One last question that left remain unclear is
As photo attahced, Why VM4 @TF1h at 4x does not show the same as VM1 @TF4h as photo attached ? Did I misinterpret on this ?
Event 1 ) the high mean the volume keep added up at the same as price change ? Sell volume is much more than Buy volume but why the increasing in red is less than the green line ?
Event 2 ) the higher sell volume and price was dropped sharply however there is no red line happened during that period. Why ?
imgur.com/a/dQbJABM