I have been trying to work with volume as an indicator for quite some time, as it holds qualities as a 'leading indicator'. However, please note that any indicator which to some extent predict a future trend has its issues as it can be misleading. But, in some datasets in a selected timeframe the leading properties of volume as an indicator are useful.
So this script is not too complicated. It shows a numeric which resembles the 'effectiveness of volume' in moving price.
For example, if a small volume creates a large price change - the Volume Effectiveness indicator will be high and show a spike Whereas, if a large volume creates a small price change - the Volume Effectiveness indicator will be low
I used 3 metrics to represent Volume Effectiveness (these are different colors on the bar chart) One price difference is the absolute(high - low) for each bar Another is the absolute(open - close) The 'open-close' is smaller than the 'high-low', so note this when viewing the bar charts
The final metric depends on if the open is greater than the close or vice-versa But it considers the 'absolute(high-low)' and the difference between the open and the high (or low) and the close and the low (or high) So the final metric is the largest of the 3 metrics and is generally the most useful of the 3 however, the other 2 are displayed to provide a better understanding of what 'Volume Effectiveness' displays
Note, I use absolute values so they are only positive, i.e. there are no negative values to represent a price drop within a bar
So, why is this indicator useful - its because volume is a leading indicator
A decreasing volume tends to suggest a price change is coming Also, when the volume within a bar is very small, its Volume Effectiveness tends to go very high That means a small trade volume creates a relatively large change in price This is ideal conditions for a big pump (or big dump - although this indicator seems to work better before pumps)
A large spike in the Volume Effectiveness is commonly/sometimes preceding a big pump
So watch this indicator - and if there is a big spike - evaluate other market conditions to consider getting into position
Large spikes in the Volume Effectiveness can precede big price changes and therefore can provide a leading indication before a pump or dump
Timeframe is important - I found on the daily timeframe this indicator did not provide sufficient lead to be useful. Similarly on the <15min timeframe the spikes were not highly correlated with pumps/dumps
However, in medium timeframes (15mins, 1hour, 4hours) this indicator can be useful for predicting sizeable price changes.
Note, this indicator is most accurate/useful towards the end time of bar, just before the start of the next bar. (The very start of a new bar is subject to massive spikes in 'Volume Effectiveness', because as time goes on the volume effectiveness within a bar reduces as more buy trades cancel sell trades.)
tylerwitucki
⋅
Looks promising, I hope this get developed further. Perhaps adding Relative Volume & Rate of Change or 'Relative Volume at Time' data would help highlight the leading trend.
MoonFlag
⋅
@tylerwitucki, thanks for leaving a comment on the Volume Effectiveness. I've been trying to formulate your suggestion 'Relative Volume at Time' in order to highlight the leading trend. Can you possibly elaborate on your suggestion a bit more to help me understand your vision here a bit clearer? Sincerely, MoonFlag
tylerwitucki
⋅
@MoonFlag, My experience behind the workings of the indicators is limited and lacking the insight to be beneficial However, I've been trying and combining different indicators with various results that may slightly help for further investigation, as well as the others previously mentioned. Thanks for publishing your work.
@tylerwitucki, thanks for replying. I've extensively tried combining indicators and hence produces the 'Momentus/StochFS...' strategy tool (please see my other scripts etc.)
Try it out on a BTCUSD chart on the 1hour timeframe, then follow the below settings.
Long Trades Only
Use ATR (1hr)
Use Momentus (3D)
Use RSI Trend (4hr)
Use Slow Stoch (12hr)