OVERVIEW The Normalized Volume indicator is a technical indicator that gauges the amount of volume currently present in the market, relative to the average volume in the market. The purpose of this indicator is to filter out with-trend signals during ranging/non-trending/consolidating conditions.
CONCEPTS This indicator assists traders in capitalizing on the assumption that trends are more likely to start during periods of high volume compared to periods of low volume. This is because high volume indicates that there are bigger players currently in the market, which is necessary to begin a sustained trending move.
So, to determine whether the current volume is "high", it is compared to an average volume for however number of candles back the user specifies.
If the current volume is greater than the average volume, it is reasonable to assume we are in a high-volume period. Thus, this is the ideal time to enter a trending trade due to the assumption that trends are more likely to start during these high-volume periods.
HOW DO I READ THIS INDICATOR When the column's color is red, don't take any trend trades since the current volume is less than the average volume experienced in the market.
When the column's color is green, take all valid with-trend trades since the current volume is greater than the average volume experienced in the market.
Hey, I have an issue that every chart provider, e.g. pepperstone, fxcm, oanda are giving different data. What is the best one to use?
violarisjs
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Do you use the default setting of 14 on this?
bjr117
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@violarisjs, Not for my algorithm. I used the setting of 55 since that filters out most of my entry signals that occurred in chop, and left the ones that mostly occur in trends. If you're using this as a low-volatility/volume filter, I'd recommend putting your entry indicator on the chart and marking out which signals occur in chop. Then, put this Normalized Volume indicator on the chart and increment/decrement the settings until you get to one that eliminates most of the signals you marked as occurring in chop.
violarisjs
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@bjr117, thank you for this information. I will do that and test out different settings to work with my other indicators. Thanks again!
bjr117
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@violarisjs, No problem! Feel free to message me if you have any further questions.