Volume-based indicators give information about the amount of traded contracts or lots. Its one of the few types of indicators that base their value not solely on price. Volume
obviously depends on the selected period. The amount of a security that is traded at any given time can give an indication as to whether the trend is likely to continue or might reverse. It shows at which prices traders open their trades. An increase in volume usually precedes an emerging trend and a drop in volume usually precedes an ending trend.
Interesting situations are created when the price makes new highs or lows while the volume drops. This price - volume divergence could point to a trend reversal. There are many volume-based indicators such as the Money Flow Index (MFI)
, Chaikin Money Flow (CMF)
and Volume-weighted Average Price (VWAP)
. They can be used alone or in combination with other indicators.