Technical Analysis, Studies, Indicators:
VMA (Volume Moving Averages)
A volume moving average (VMA) represents the average volume generated over a given period of time. For example, a 9-period VMA represents the average volume produced over the past 9 periods, including the present bar.
The two types of moving averages are:
- The Volume Moving Average Simple (VMAs) - the average volume over a specified number of periods;
- The Volume Moving Average Exponential (VMAe) - applies to weighing factors to reduce the lag in simple moving averages.
VMAs are used to observe volume changes over time and have a smoothing effect on short-term volume spikes. A rising VMA indicates that a larger than usual number of shares have changed hands - for whatever reason (greedy buyers, panic sellers, etc.). Significant volume surges often precede trend reversals on the indexes. The higher a VMA's period, the more it will tend to smooth out volume spikes. In this way, the use of a high-period VMA will ensure that only the larger volume surges are reflected.
Longer-term VMAs - also called slow VMAs - are used to highlight long-term surges in volume production. If significant enough, such volume surges often precede long-term trend reversals on an index. Shorter-period VMAs - also called fast VMAs - are used to highlight shorter-term volume surges; these often precede short-term trend reversals.
Below, we have listed the recommended VMA settings for different charting periods. We recommend you use these particular VMA settings - they have proven to be effective in signaling coming market trend reversals.
Table #1: Recommended VMA settings
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