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Sunday, 03 July 2022


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Volume Rate of Change Indicator


The Volume rate of change or VROC is a technical indicator that measures the rate of change in volume.

In principle, the VROC behaves similar to the Price rate of change (PROC) indicator. However, it is obvious that while PROC measures the rate of change in price, the VROC indicator measures the rate of change in volume.

Volume is one of the most powerful indicators that day traders can make use of. It is available to just about anybody and is a default indicator on most charting platforms. Volume is nothing but the total aggregate of the number of shares that changed hands.

Volume does not differentiate between shares that are only bought or only sold, but rather accounts for both buying and selling.

Using volume, one can analyze the stock’s behavior very clearly. Volume can at times help traders to understand whether the market movement is valid or not.

In fact, most of the chart patterns that are commonly used, such as the head and shoulders pattern, the bullish and bearish flag and pennant continuation patterns also account for changes in volume prior to the break out.

1 – Why should you pay attention to volume?

Firstly, volume is only applicable in markets where the asset or security is cleared via a centralized exchange. This means that only stocks and futures fall into this category.

Spot forex, which is traded over the counter (OTC), is not a perfect example as the spot currency markets are de-centralized and there is no central clearing agency.

Therefore, volume analysis is mostly applicable to just stocks and futures. For example, stocks are cleared at an exchange such as the NYSE, while futures are traded at the CME Group.

This level of centralized exchange makes it possible for every trade or contract to be logged in the exchange’s books.

Volume is the information that is available to every trader and market participant.

There are many volume based indicators which can give traders a completely different perspective of the security being traded.

Many traders tend to focus just on price. But also considering volume can help in expanding one’s horizon and gives a better understanding of what other traders and market participants are doing.

Volume is typically plotted on the price chart at the bottom.

Depending on the security being analyzed, volume can change. Besides volume, there is also a 20-day average volume. This works similar to a simple moving average. The average volume will quickly tell you how popular a security is. You can of course change this to a 10-period or even 5-period average volume.

It is often advised that traders should only trade those securities that have high volume. There are a number of reasons behind this. For one, a high volume security means that it is very liquid.

Buying and selling a high volume stock is easy, especially for day traders. At the same time, a stock with high volume can also help it to absorb any abnormal buying or selling from institutional investors.

The first chart below shows a very simple chart of a security with price and volume.

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