Volume Moving Average (VMA)
Volume Moving Average, as the name indicates, is a moving average of the volume rather than the price. VMA represents the average volume over a specified period of time and can be used to chart a stock, ETF or index for a period as short as a few minutes to as long as many years. By smoothing out individual surges in the volume activity, VMA allows you to see the general trends and volume patterns of a stock or index.
A longer period VMA (aka Slow VMA - a larger number for the period) is often used to highlight long-term surges in volume. Significant volume surges sometimes precede long-term trend reversals. A shorter-period VMA (aka Fast VMA - a smaller number for the period) is often used to highlight short-term volume surges, which may precede short-term trend reversals. Watch out when selecting your period for your VMA to avoid setting your period too high or too low, as the volume will either be smoothed out too much or be too erratic for practical use.
An n-period volume moving average is calculated by adding the sum of the previous n-periods volume (e.g., 10 Days) and then dividing the total by n. The result is the volume moving average of the security over that time period.
V = Previous Day's Volume
N = Time Period
For example, to calculate a volume moving average for IBM on an intraday 5 min 2 day chart with 10 being the period:
- Locate the actual point that you would like to calculate.
- Add the previous 10 days' total volume (Time Period = 10).
- Divide that sum by the actual time period (10).
- That will result in the Volume Moving Average for that particular point.
Note: When adding VMA as a new study, it will default to the first window with a Volume study already in place. However, if a Volume study does not exist, a new sub window will be added with a Volume study and the VMA study. The default time period for a VMA is 10.
The strategies described in this article are for information purposes only, and their use does not guarantee a profit. None of the information provided should be considered a recommendation or solicitation to invest in, or liquidate, a particular security or type of security. Investors should fully research any security before making an investment decision. Securities are subject to market fluctuation and may lose value.