How to Use the Trade Volume Index...

To start with, the definition of the trade volume index should be first considered. The trade volume index is a technical indicator in trading which measures the amount of money going in and out of a property or an asset. To simply put, the trade volume index tells whether a security is bought or sold. But due to its technicality in nature, using the trade volume index requires complex thinking and sound trading strategy. The trade volume index is commonly used by day trading professionals because the trade volume index is using intraday pricing data. Day trading professionals are traders who trade securities within the day. But that does not mean that “common people”, or people outside the trading world, will not get to learn how to use the trade volume index. As the world is changing fast paced, careers might shift for the “common people” to day traders. To provide them for the basic start-up tool (knowledge), here are some tips on how to use the trade volume index.

1. The trade volume index is a trader’s crystal ball. It has a predictive power when assessing a stock, especially on flat liners. For example, if you want to purchase a stock on a break of a certain amount, but it has been idle on flatness for about 1 ½ hours to 3 hours, you might want to think twice on pulling the trigger. The market is dull for hours before the breakout; therefore, it is bad omen. But if you see the trade volume index ballooned after the 3 hour period, it could be a sign that the traders are accruing the stock at the ask price. Therefore, this momentum increases the odds that the stock will move when it clears resistance.

2. Know the direction of accumulation and distribution. First of all, you must be familiar yourself to the term minimum tick value. The minimum tick value is a specified amount which is used to compare the change to know if it is to accumulate or to distribute. The change is the price minus the extreme price since direction was changed. If change is more than the minimum tick value, then the direction means to accumulate. If the change is less than the minimum tick value, then direction should be to distribute. If change is less than or equal to the minimum tick value and the change is more than or equal to the minimum tick value, then the direction will still be the last direction, accumulate or distribute.

3. Learn to calculate the trade volume index. This will be very simple once direction is already known. If the direction is to accumulate, then the trade volume index is the sum of the previous trade volume index and the volume. Otherwise, if the direction is to distribute, then the trade volume index should be the previous trade volume index minus the volume.

The trade volume index is very helpful for the day trading people. Therefore, the knowledge of investing in day trading should also be shared for the benefit of many, starting by learning to use the trade volume index.