Stock Trading.

  

Volume Moving Average.

Volume Is A Trader's Best Friend:

Volume is a trader's best friend. Few technical indicators give the experienced trader a better feel for the minds of his fellow traders and investors. The heights of their greed, the depths of their fear, the loudness of their panic, and quietude of their ambivalence. All of these emotional states are seen with volume.

Volume Moving Average - VMA

This is an indicator used in charts and technical analysis. It refers to the average volume of a security, commodity or index constructed in a period as short as a few minutes or as long as several years and showing trends for the latest interval. As each new variable is included in calculating the average, the last variable of the series is deleted.

This has to be one of the most important tools for any volume indicators. Normally, volume can be somewhat turbulent, you may see spikes here and there due to some large trades. With the volume moving average (VMA) you can smooth out those fluctuations, that way you can see where the general direction of the volume is going (i.e. increasing or decreasing).

Generally when an index decreases and a volume moving average increases at the same time, you can expect a reversal in the index at the point when the volume begins to decrease again. The same is true for when an index is increasing

Each stock chart should has volume moving averages (VMA) , which can range from a period of 5 minutes to 60 days. These VMAs are used to smooth out volume spikes so that you can see volume as a trend and not just random spikes.

On the charts below you can see a view of charts without and with VMA for the NASDAQ Exchange.

NASDAQ, 12/17/2001 - 12/21/2001, Chart without VMA.

As you can see it difficult to recognize signals on the above chart without a VMA. Yes, if you have more then 20 years U.S. markets experience it would be enough for you but it much easier if you have a VMA:

NASDAQ, 12/17/2001 - 12/21/2001, Chart VMA - 30 min.

Now, you can see all movement of the volume during this period of time, all sentiments of the market, you can tie price and volume and get clear picture of their relationship.

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