We continue telling about the trend indicators presented on the main trading platforms, including a live chart. Today, we will consider the main possibilities provided by the Volume/Accumulation indicator, which is frequently called the accumulation volume indicator. The authors of this indicator are Mark Chaikin and Donald Lambert. They have developed the unique tool which is capable of the effective measuring of the volume of the deals which are closed in the stock exchange.
When constructing, the Volume Accumulation takes into account the volume of trading produced in the market in a time interval used by a trader depending up the timeframe, which he has chosen for his work. By its essence, it is very similar to the OBV technical analysis tool, but there are the fundamental differences primarily related to those parameters which are taken into account during the calculation process. For example, the accumulative volume takes into account far lesser amount of showings, and it makes this tool simpler and clearer for a trader.
Considering the trend models, it is needed to keep in mind the distinctive features which are also taken into account for the construction of the Volume/Accumulation:
- When a market is the ascending one, the indicator’s showings will be close to their maximum values, and when a price falls, they will be close to the minimum values.
- The rise of the volume indicator over the average value shows the bullish market, and its fall shows the bearish market.
Application of Volume/Accumulation
There are several variants of application of the Volume/Accumulation indicator, but the most popular is the divergence. Its essence consists in the fact that the main movements of the asset’s price are not backed by the corresponding growth (decline) of the trading volumes. It can be formulated by the following conditions:
- If the asset’s price grows and forms a new maximum, but the corresponding showings of the Volume/Accumulation do not form a new peak, then the price movement is baseless and won’t be strong, and it allows buying the Put option.
- If in the process of falling prices volumes will increase on the clear peaks of the change of quotations, then it is allowed to buy the Call lot.