The Volume Rate of Change shows how quickly trading volume is rising or falling, helping commodity traders spot momentum shifts and confirm breakouts before price moves.
The Volume Rate of Change indicator measures the percentage change of current volume as compared to the volume a certain number of periods ago.
The Volume Rate of Change indicator might be used to confirm price moves or detect divergences. The formula for Volume Rate of Change is expressed below:
- [(Current Volume / Volume n periods ago) – 1] x 100
Generally, the Volume Rate of Change is calculated based on 14-periods for input n, but of course can be modified to any trader preferred period. A chart of the 100 ounce Gold futures is shown below with the 14-day Volume Rate of Change indicator:
As the price of Gold was increasing, the Volume Rate of Change indicator was increasing as well, suggesting that there was buying interest as prices were rising.
When Gold broke above trendline resistance, the Volume Rate of Change indicator surged higher, suggesting that buyers were extremely interested in buying Gold.
The section discussing how traders typically interpret Volume would be an excellent next step (see: Volume) to read.
How to Get Started Trading
Further Reading on Momentum Indicators
These momentum tools complement Volume Rate of Change: ADX Indicator, Directional Movement Index (DMI), and Relative Strength Index (RSI).
Technical analysis is most widely used in CFD and forex trading. If you’re ready to apply these techniques, browse our vetted CFD brokers or forex brokers.
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