Volume Price Confirmation Indicator

The Volume Price Confirmation Indicator (VPCI) is a comprehensive technical analysis tool that integrates price and volume data to determine whether market trends are supported by genuine buying or selling pressure. By utilizing volume-weighted moving averages, the VPCI measures the relationship between volume concentration and price action. This allows traders to identify high-probability trend entries, monitor the strength of current momentum, and pinpoint potential reversals through volume-price contradictions where the price makes new highs or lows without the backing of sustained volume.

How to Trade the Volume Price Confirmation Indicator?

The primary signal for entering a trade with the VPCI is the crossover between the VPCI line and its smoothed signal line. A long entry is suggested when the VPCI crosses above the smoothed line, provided the price is trading above its long-term simple moving average and the VPCI value is positive. Conversely, a short entry is signaled when the VPCI crosses below the smoothed line while the price is below the long-term moving average and the VPCI is negative.

To manage risk, the indicator provides two exit strategies: exiting when the VPCI crosses back through the smoothed signal line or waiting until the VPCI crosses the zero level. Traders should also pay close attention to volume-price contradictions. These occur when the price records a higher high while the VPCI records a lower high, or a lower low while the VPCI records a higher low. Such contradictions indicate that the current move lacks sufficient participation and may precede a trend exhaustion or a reversal. The integrated dashboard provides a quick summary of current state, volume concentration, and performance metrics for open positions to assist with real-time decision-making.

Volume Price Confirmation Indicator Settings

VPCI (Dormeier)

• Source: The price series used for calculations. The default setting is the close price.
• Short-term Length: The window used to calculate the Volume Price Ratio and the numerator of the Volume Multiplier.
• Long-term Length: The window used to calculate the Volume Price Confirmation and the price trend baseline.
• Smoothing Length: The period used for the signal line. Using a volume-weighted approach helps ensure that heavy-volume sessions carry more influence.
• Bollinger Bands on VPCI: Toggles the display of standard deviation bands to help identify extreme volume-price readings outside typical ranges.

Confirmation Signals

• Signals: Determines if the indicator should generate long signals, both long and short signals, or hide signals entirely.
• Require VPC Sign Agreement: If enabled, this requires the VPCI to be on the same side of the zero line as the trade direction, filtering out trades where volume strength is inconsistent.
• Exit Rule: Selects between exiting when the VPCI crosses the smoothed line or when it crosses the zero line.

Contradictions

• Volume-Price Contradictions: Toggles the display of divergence flags between price swings and VPCI movements.
• Swing Length: Defines how many bars on either side of a peak or trough a price level must dominate to be considered a valid swing.
• Max Bars Between Swings: The maximum distance allowed between two price swings to be considered for a contradiction analysis.

Frequently Asked Questions

What is the difference between VPCI and standard volume indicators?

How do I use the contradiction labels?

What does the dashboard display?