Volume Indicators Lead Price

MACD Compared with Several Volume Categories  
Older technical analysis books will state that Price is the most important aspect of a stock chart. However, most were written at a time when Volume aka Quantity data was either unavailable or unreliable. With a fully automated Stock Market and streaming data feeds, Volume is now just as important as Price.
Without Volume, traders are missing half of the crucial data available for each trade.
Just like Price, there are many categories of Volume aka Quantity Indicators. To fully analyze a stock chart in order to see Volume Indicators lead Price, several different types of Volume Indicators should be incorporated into your analysis along with favorite indicators for Price.
Keep in mind that every indicator works ideally in a specific market. MACD is best when the market is Moderately Trending Up. Extensive studies of MACD have proven over many various analysis that MACD is an upside indicator. It is often used for selling short but underperforms other price indicators, due to the fact it was first designed for a market that was moving with momentum out of a long-term bottom. The entire formula intent was for finding momentum when the market moved up.

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Volume Indicators work as well on both sides of the market, however certain tweaking of the settings and periods are necessary for a downtrending market as fewer Market Participant Groups actually sell short. So keep that in mind as you set up Volume Indicators.
Since Volume Indicators lead Price and there are several categories to consider, below is a list with explanations:
1. Quantity Indicators tell you the strength or quality of the current price action, even if price is in a very tight range. In fact when price is very tight and small, Volume is the only indicator that will lead.
2. Volume Oscillators like ChiOsc function differently than Price and Time Oscillators, which are designed to reveal overbought/oversold price conditions during a Trading Range Market Condition. Volume Oscillators reveal quiet accumulation, rotation, extreme volume surges, and insipid volume that precede whipsaw price action and weaker candles. Most Volume Oscillators are center line oscillators and take a bit of getting used to, for traders who have never used a Volume Oscillator before. There are numerous Volume Oscillator patterns to learn.
3. Money Flow Index MFI or Flow of Funds into or out of a stock reveals rotation or distribution and can indicate Dark Pool activity. These are Institutions lowering their percentage of held shares over time, especially the giant Buy Side Institutions who control vast quantities of stock.
4. Accumulation/Distribution Indicators are also Volume based, but include Price as well making them a Hybrid Indicator when used with a subordinate indicator. These tend to lead price sooner and with more emphasis. 
5. Comparative Volume Indicators are usually comparing Price and Volume patterns, but may also compare different Volume Indicators.
The chart example below has multiple indicator windows, which show that all the Volume based indicators lead Price. For indicator comparison I have added Relative Strength Index RSI and MACD to the chart indicator windows, which show they lag behind Price.
chart example with multiple indicator windows - technitrader

The chart below is provided without the gold frame for easier Indicator comparison viewing:


Summary
For this stock example the importance of entering sooner is emphasized, as this stock suddenly gaps and runs. Being able to read leading indicators properly is most important, rather than chasing after a run. Technical Traders who intend to not be Hobby Traders but are planning a career in trading need to learn Volume Indicators, how and when to use which type, and how to interpret the various patterns each provides.
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Trade Wisely,
Martha Stokes CMT
TechniTrader technical analysis using a StockCharts chart, courtesy of StockCharts.com


Chartered Market Technician
Instructor & Developer of TechniTrader Stock and Option Courses
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