VOLUME MOMENTUM

The Volume Momentum indicator tracks the momentum of trading volume to help traders identify periods of increasing or decreasing market participation. By visualizing the rate of change in volume, this tool allows momentum traders to confirm price trends with supporting volume data.

Usage

The Usage section describes how the script can be used. Traders can use the Volume Momentum indicator to confirm the strength of a price move; for instance, a price breakout accompanied by rising volume momentum suggests a higher probability of trend continuation.

The indicator is displayed as a histogram. When the histogram is above zero, it indicates that the current average volume is higher than it was a specified number of bars ago. Conversely, values below zero indicate declining average volume. If the "Change Color" setting is enabled, the bars will change color based on whether the momentum is increasing or decreasing relative to the previous bar, providing a more granular view of volume flow.

Details

The script calculates volume momentum by first determining a moving average of the volume over a user-defined length. It then subtracts the moving average value from $n$ periods ago (where $n$ is the length) from the current moving average value.

The formula can be represented as: Momentum = MovingAverage(Volume, Length) - MovingAverage(Volume, Length)[Length]

Users also have the option to multiply this result by the current volume, which can accentuate spikes in activity during high-volume periods.

Settings

• Length: Determines the lookback period for the moving average and the momentum calculation.
• 1=sma, 2=ema, 3=wma: Allows the user to select the type of moving average used (Simple, Exponential, or Weighted).
• Multiply the volume?: When enabled, the momentum value is multiplied by the current volume to emphasize high-activity bars.
• Change color?: When enabled, the histogram bars will change color based on whether the current momentum value is higher or lower than the previous bar's value.

FAQ

How do I interpret the zero line?

Crossing above the zero line indicates that volume momentum is turning positive, suggesting increasing interest, while crossing below indicates waning volume participation.

Can I use this for any asset?

Yes, the Volume Momentum indicator can be applied to any financial instrument that provides volume data, such as stocks, ETFs, and most crypto pairs.

How can I access Volume Momentum?

You can get access on the LuxAlgo Library for charting platforms like TradingView, MetaTrader (MT4/MT5), and NinjaTrader for free.