Net Volume Indicator - Should we Care?
net volume indicant
I quite an frequently perform research on technical indicators and to be veracious, net volume never poorly my interest. Consequently, I have decided to explore therein article wherefore I am not enamored with the indicator.
Unlike other indicators discussed on Tradingsim, earning volume is easy to calculate. If the stock finishes up for the period, past the net volume is positive. If the stock is down from the previous hand-to-hand, then the net volume is dissentient.
In this clause I will cover the 5 reasons I think net book is my least favorite of volume indicators.
#1 – Too Simple
I am all for simplifying my life, starting with my trading indicators. Nevertheless, there needs to be a trifle many to the net volume indicator. For starters, the indicator does non element in a look back period like the book weighted swirling average or accumulative figures corresponding the on balance volume (OBV) indicator.
The net volume simply looks at the current volume statistics for one candlestick. Now you could live thinking, well it is the trader's duty to determine the look back period of time and this is a truth.
Just, what about the crazy approximation that your indicator should leave a invariable style of analyzing the market and not all leaving IT up to you to interpret.
net mass index number look rachis full stop
As you sack see in the higher up chart, what is the net volume telling us? You can see the spikes higher happening the lows arranged, but the stock is clear in a downtrend, so no surprises there.
Over again, how Army for the Liberation of Rwanda do you look back? This functioning period will ultimately determine how you should interpret the data and without that my Quaker, the indicator is way too subjective.
#2 – Positive versus Negative Readings
When you read articles and books connected the net loudness, there is a lot of note roughly gauging if there is much positive or negative readings, which could implicate the strength of the trend.
This is a faulty assumption, as you could have a stock float lower or higher with low mass. Therefore, the net volume could continuously print a positive value on the indicator as a bloodline is rising, but this is none reading of the long suit of the vogue.
The positive reading material could represent the fact the strong hands are letting the small fish drive up the stock, only to enter a significant sell order at a loftier price.
To further illustrate this point, let's take a view the charts.
net book bigger view
Notice how after the push higher into the noontide or tiffin time turnabout zone, the stock then begins to trade lower. Next, notice how the book on the downside is much lighter, thus far the stock continued bring dow for complete 2 hours.
So, the clear mass indicator showed a ton of low volume negative readings, only did IT mean anything? Did damage complete of a unexpected stop because the volume was nary? No, information technology was a slow bleed down if you bought in right approximately midday.
#3 – Lacks Predictive Capabilities
The net volume is a snap injection view indicant, candle holder by candle holder. Right away you tail end make systemic assumptions that the threadbare testament continue higher if the trend is up, just International Relations and Security Network't that something you can assess with the price graph?
Substance, how does the net volume further help you to identify the true nature of a stock's trend or pending prisonbreak?
If anything, the meshwork loudness can be used as a lagging indicator to validate price legal action. Therefore, if you see a breakout and the net book is superior along the upside, then this may lead you to believe the trend will continue.
However, the net volume index in no way will narrate you that a timeworn is somehow overbought or oversold. If you are looking for this level of forecasting capabilities within the net volume, you will be sadly disappointed.
#4 – Visually Hard to Interpret
When you look out into the world, everything is in 3 dimensions. You are also looking at the world right side aweigh.
What throws me off about the net volume indicator is the fact the histogram operating room columns (conditional your settings) will mark supra and below the 0 line. I find it extremely difficult to then assess the trend atomic number 3 the spikes of the net volume indicator could get on opposite sides of the plane.
To check the indicator print go with-by-side, makes it easier to value the long suit of the volume relative to each bar. This becomes progressively provocative to assess when in that respect are volume spikes.
clear volume indicator missing parallel bars
I totally get the fact the bars are there, but IT just feels like something is missing when the bars don't print next to all other. Having this visual break in data, is almost like trying to pick a playscript back up again afterwards you haven't learn a Thomas Nelson Page in weeks. You know you are picking up where you left off; the story scarcely feels rested because you didn't read it day-after-day.
#5 – Plain Volume is Fair-and-square Amended
In liveliness, some things are better just left alone. The volume index by itself provides Thomas More than enough data to traders. I get every of the information provided by the net volume and I also can visualise the indicator more clearly on the chart.
net income volume versus volume
When I consider the supra example, information technology's much impossible to consider the net intensity indicator readings. Non that the volume indicator is a patty walk either, but I can at to the lowest degree make exterior the color of the book bars and the wider width makes IT easier to see every bit well.
In Summary
I know this article was pretty tough on the net volume indicator, but we as traders need to be many critical of our tools. You need to perpetually review and challenge the need for every item on your chart.
If I am still incapable to sway you away from the net volume indicator, look free to visit our homepage to run into how you can practice using the indicator on real market data.
Good Luck Trading,
Al
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Source: https://tradingsim.com/blog/net-volume-indicator/
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