Volume Based Technical Analysis
Volume - The number of shares traded over some time period. The term may be applied to an individual security or to an entire index or exchange. Also called "trading volume". The analysis of volume patterns is an essential aspect of technical analysis. Volume provides evidence of the intensity of a given price move. As volume activity often precedes price moves, it is a valuable indicator, especially for determining price peaks.
Volume Moving Average (VMA) - An average of volume data calculated for a certain number of time periods. Similar to a moving average of stock prices, but applied to volume data. The user can specify the length of the moving average, which can vary anywhere from 5 minutes to several days. The use of a VMA smoothes out any non-relevant surges in volume; it thus provides a better picture of the overall volume activity. Volume moving averages can be used to aid in the accurate determination of both short- and long-term support and resistance levels.
Volume (VMA) Surge or Volume (VMA) Surge - A sudden overshooting of the fast volume moving average (VMA) over the slow (longer-term) VMA more then 15-20%. Volume surges are an indication of an abrupt increase in trading activity above levels considered to be "normal" in selected time-frame.
Chart #1: Examples of volume moving average (VMA) surges on a 5-day timeframe. Fast VMA = 60-minutes; Slow VMA = 1-day. S&P 500 index. February 25 - March 3, 2005.
VMA Surge Magnitude- The highest (vertical) value of a volume moving average surge.
VMA Surge Duration - Length of time that a surge in the volume moving average persists.
Chart #2: Magnitude and duration of a volume moving average (VMA) surge. 1-day period. S&P 500 index. May 5, 2005.