What Is a Volume Moving Average (VMA) (2024)

One of the straightforward volume-based technical analysis is the Volume Moving Average. A VMA, analogous to a price-moving average, is the average volume of a security (stock), commodity, index, or exchange over a predetermined time frame. By filtering out short-term spikes and gaps, volume moving averages are employed in charts and technical analysis to smooth out and explain a volume trend.

Generally, a volume may be quite volatile, and you may notice spikes here and there due to specific massive deals ("games" of the significant institutional traders). You may reduce the impact of individual volume swings by using a moving average of volume method. As a result, it is now feasible to visually assess the overall direction of the volume. i.e., rising or falling. In addition, you will be provided with a numerical representation of the volume trend, which can be used in conjunction with many other indicators and trading systems.

There are several VMA types, just like the price analysis. A Simple Moving Average applied to the volume is one of the most popular VMAs. This is determined by taking the total number of bars and dividing that total by the total number of bars.

One type of moving average is known as an exponential VMA, and it employs weighted elements to cut down on the latency that is inherent in a basic moving average. In addition to that, analysis makes extensive use of it.

The fundamental and straightforward instrument in analysis is a VMA. This criterion can stand on its own and being evaluated. At the same time, VMAs are used in the calculations of more complicated volume-based technical investigations. The formula for the Volume Oscillator, Percentage Volume Oscillator (PVO), and Market Volume Oscillator (MVO) all include a VMA. Indirectly, a moving average is used to volume in the accumulation/distribution, Oscillator Chaikin, Chaikin Money Flow (CMF), and On Balance Volume (OBV), among other things. As a result, VMA has the potential to be regarded as one of the most significant instruments that may be used in indications.

Monitoring changes in the direction of VMA is one of the fundamental methods of analysis. When the price of a security (stock, index, or other commodity) goes up, and we witness a huge rise in the VMA, it often suggests that the intensity of bullish (buying) traders is growing considerably.

In a similar manner, a spike in a VMA during a price decrease implies an increase in the number of traders who may be panicking and dumping their positions. As soon as the VMA begins to go down after being at a high level during the price drop, it may be an indication that the number of traders who are interested in selling has reached its maximum and that there may be a shift in both the sentiment and the trend direction.

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