Volume Tutorial:
Volume
Moving Average
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 shows 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 our
indicators. This is where you select the moving average period to apply to
the volume. Normally, volume can be somewhat turbulent and you may see
surges
here and there due to some large trades. With the volume moving average
(VMA) you can smooth out those fluctuations so 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 the VMA surge peaks and begins to decrease again. The same is true
for when an index is increasing.
MarketVolume® has created volume moving averages (VMA)
ranging from periods of 5-minutes to 60-days, for all of its indicators. These VMAs are used to smooth out volume
surges so that you can see
volume as a trend and not just random surges.
Below is a list of recommended VMA settings for every
period in our charts. We recommend the following VMA settings because they
tend to work the best in showing signals of future market trends.
Table #1:
Recommended VMA settings
|
Period
|
SBV
VMA Period
|
Fast
VMA
|
Slow VMA |
1 bar
value |
 |
|
|
|
|
|
Intraday
Indicators |
|
2-Hour Period
|
1-20 bars |
1-20 bars |
40-100 bars |
1 minute |
|
1-Day Period |
5-30 bars |
5-30 bars |
60-100 bars |
1 minute |
Short-Term Indicators |
|
5-Day Period |
7-25 bars |
7-25 bars |
70-200 bars |
5 minutes |
|
15-Day Period |
7-25 bars |
7-25 bars |
70-200 bars |
15 minutes |
|
30-Day Period |
7-25 bars |
7-25 bars |
70-200 bars |
30 minutes |
|
60-Day Period |
7-25 bars |
7-25 bars |
70-200 bars |
1 hour |
Mid-Term Indicators |
|
3-Months Period |
3-8 bars |
3-8 bars |
40-80 bars |
1 day |
|
6-Months Period |
3-8 bars |
3-8 bars |
40-80 bars |
1 day |
|
1-Year Period |
3-8 bars |
3-8 bars |
40-80 bars |
1 day |
|
1.5-Year Period |
3-8 bars |
3-8 bars |
40-80 bars |
1 day |
|
2-Year Period |
3-8 bars |
3-8 bars |
40-80 bars |
2 days |
Long-Term Indicators |
|
3-Year Period |
3-8 bars |
3-8 bars |
40-80 bars |
3 days |
|
4-Year Period |
3-8 bars |
3-8 bars |
40-80 bars |
3 days |
|
5-Year Period |
3-8 bars |
3-8 bars |
40-80 bars |
5 days |
|
7-Year Period |
3-8 bars |
3-8 bars |
40-80 bars |
7 days |
|
10-Year Period |
3-8 bars |
3-8 bars |
40-80 bars |
10 days |
|
Weekly |
3-8 bars |
3-8 bars |
40-80 bars |
1 week |
|
Monthly |
3-8 bars |
3-8 bars |
40-80 bars |
1 month |
|
|
Be careful! You should not set the volume moving average
too high or too low, as you will either smooth out the volume too much or
make it too erratic. For example, on a 5-day chart, a 60-minute VMA
works best, and for a 1-day chart, a 30-minute VMA works well.
On the charts below you can see a view of charts with
different VMA settings for the NASDAQ Exchange.
NASDAQ, 12/17/2001 - 12/21/2001, Chart
without VMA.
As you can see, it's 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, but it's much
easier if you have a VMA:
NASDAQ, 12/17/2001 -
12/21/2001, Chart VMA - 30 min.
Now that you can see all movement of the volume
during this period of time, you can see the market sentiment. Using navigation
lines you can tie price and volume and get a clear picture of their
relationship.
If you want to see the most important
movements of the volume all you have to do is just increase the VMA
period:
NASDAQ, 12/17/2001 -
12/21/2001, Chart VMA - 60 min.
The same Exchange, the same chart, but the VMA
is different and turning-point volume signals become more clear. You can
go even further and make the period of VMA 120 minutes:
NASDAQ, 12/17/2001 -
12/21/2001, Chart VMA - 120 min.
We recommend that you to experiment with the VMA
periods to find the best one for your technical analysis.
|
