Day trading is more than just pressing buy and sell buttons. It’s all about indicators, especially volume.
Once you begin your trading journey, you will encounter various indicators that promise to be a holy grail, only for the indicator to not work with your strategy.
Learn more about the best volume indicator for day trading and which is best for you.
Table of Contents
What is Volume in Day Trading?
Volume is the number of assets transferred, which is visible in any time frame. The bigger the time frame, the better the confirmation.
Whether you’re trading stocks, metals, crypto, or forex, volume can give you the confidence to take a trade if you know the banks or whales are in the process of making big moves.
In trading, it’s essential to follow the money. Volume allows you to not only follow the money but take better trades with extra confirmation, increasing your profitability and success.
Why is Volume Important in Day Trading?
Because a market is open for 16 hours or 24 hours does not mean you should trade all the time.
Usually, the best time to trade is during the New York session for stocks. Unfortunately, even during the opening and closing bell, there can be consolidation.
Volume lets you see if there’s action and if your trade can hit your profit targets within the session.
High volume also gives you confirmations for better entries to increase your chances of a profitable trade.
Do You Need a Volume Indicator to be a Successful Day Trader?
Depending on your trade style, you may need volume.
Many traders do well without volume, although candlestick analysis is also part of the volume.
For example, the larger the Japanese candlestick, the more the volume.
If the price is over a moving average, that also indicates there is substantial volume.
Overall, traders cannot do without volume, as it’s part of the chart itself—even without other indicators.
Different Types of Volume Indicators in MT4 and Tradingview
There are hundreds of volume indicators through TradingView and other platforms. However, only a few volume indicators are used by traders, such as VWAP, Money Flow, and Volume Profile. Also, Japanese candlesticks themselves can show volume and strength without other indicators.
Volume Profile in TradingView
A popular volume indicator on TradingView is called Volume Profile.
The indicator is straightforward and shows you which price is receiving the most volume. It’s also called Point of Control, and the line can also act as a support and resistance.
Interestingly, this volume indicator is that price can retest the POC, giving you confidence in taking entries.
This indicator is also powerful when paired with other indicators, such as moving averages or standard support and resistance using daily, weekly, or monthly levels.
VWAP in TradingView
The VWAP is a hidden gem yet a classic when it comes to volume indicators.
Most new traders are familiar with moving averages, but the VWAP is a more sophisticated version of the moving average, as it calculates the average volume.
The VWAP stands for Volume-Weighted Average Price. It finds the average on any given time frame using the high, low, and close.
The VWAP can also be used to confirm a trend, similar to moving averages.
Big institutional traders use VWAP to keep prices within a specific range, allowing retail traders to get in on the trend once the price retests the VWAP.
There are three lines in all regarding the VWAP. The middle line is the average, while a top and bottom line show the price below or above the average.
Overall, the VWAP is amongst the best volume indicators for day trading because of its accuracy and ability to confirm trends.
Money Flow in MT4 and TradingView
Also called Chaikin Money Flow, this volume indicator is similar to oscillators such as RSI.
The CMF indicator shows the strength of the price between intervals, typically between 80, 20, and 0.
When the price reaches 80, it may start to exhaust. Similar to the RSI, when the price is too high, it is called overbought. However, with the CMF indicator, price is potentially reaching a point that it may reverse.
It is the same concept when the price is too low, where the RSI calls it oversold. With the Money Flow indicator, extensive selling pressure may show a potential trade if there are more confirmations the trade is looking to reverse.
You can also customize how long you want the Money Flow period to be, with the average being 21 days.
Japanese Candlesticks
Many professional traders don’t use any indicators except for a naked chart.
However, they can still read volume if they use Japanese candlesticks.
Each body of a Japanese candlestick has a story, telling you what occurred in your chosen timeframe.
For example, a daily candlestick may have wicks on the top and bottom, with a small body. Typically, that means there was low volume with some indecision.
A large body, especially if it engulfs the previous candle, shows tremendous volume, with the momentum going in a certain direction.
If there are no wicks on the candlestick, it means the buying or selling pressure was evident. The direction of the candle also will indicate who is still in control.
For example, if there was bearish momentum for a few weeks on Tesla, only for it to break out after an earnings report with a massive candlestick in the opposite direction, engulfing previous candles with minimal wicks on the top, it means buyers have taken control.
When there are little to no wicks on a candlestick, it means the bulls or bears are in control, giving you entry opportunities if price retests.
Default Volume Indicator on TradingView
If you’ve ever signed up to TradingView, a volume indicator comes already with the service. Even if you remove it, the indicator is plainly called “Volume,” and it’s another straightforward strategy traders use.
This volume indicator also follows along with any time frame you view, showing the highest amount of volume in that session.
For example, if the volume is low, the candles will begin to get smaller. Once volume kicks in, the volume candles will show a spike with the color of your bearish or bullish candle. Once that spike is above all the previous volume candles, it’s safe to say there’s the volume in a certain direction.
How to Use Volume
Using volume is more than looking at the indicator. It’s all about interpretation and what the data is telling you.
A few ways to read volume are the following:
- Trends: The old saying “the trend is your friend” is still true today, as the trend dictates how well your trades will go. Follow the trend, follow the money, and you will begin to be a profitable trader.
- Exhaustion: Price exhaustion is underrated in trading, as it tells you if a trend is ending or a reversal is on the horizon. It helps you avoid taking trades if the volume is low or not in your favor, preventing losses.
- Bulls and Bears: Volume is one of the strongest indicators of who’s in control, whether it’s the bulls or the bears. Whether it’s candlesticks with no wicks, or the price reaching an interval that indicates a strong trend, volume can confirm which players are in charge.
- Fake outs and Breakouts: Traders often fall for the false moves in the market, which are deemed fakeouts. Meanwhile, breakouts can mean new opportunities. The bottom line is, volume can help you differentiate between fake outs and breakouts.
Creating a Volume Trading Strategy
When you’re creating a trading strategy, look to incorporate one volume indicator. Most likely, you will use Japanese candlesticks, but another indicator to help may benefit you.
The best way to know if volume indicators will play a part in your strategy is to test them out using trial and error.
Also, begin using volume indicators as part of your entry and exit strategy and keep track of your trades, including wins and losses.
Which is Right for You?
If you’re wondering which volume indicator is right for you, test them all out and give them 2 or 3 weeks.
Especially if you’re a beginner trader, you will be looking for various combinations of indicators to find that holy grail.
However, the truth is you may only need one volume indicator as long as you can read it perfectly.
Final Thoughts
The best volume indicator for day trading is subjective. However, this article has provided you with a few options that have been tested and proven to be part of every trader’s arsenal.
Volume indicators show you momentum, which can also help you confirm a trend before taking a trade.
Entries and exits are the most challenging parts to master as a trader. Using volume indicators can help you gain confidence to take entries, setting decent stop losses, and setting realistic take-profit targets to begin your journey as a successful trader.
Overall, continue to test out various volume indicators to find the best volume indicator for you and your trading style.