Volume Accumulation Divergences

Any increase or decrease in price with little volume is to be looked upon with skepticism. The Volume Accumulation indicator helps show instances where price is making new highs or lows, but the indicator is failing to confirm those price moves. Also, the Volume Accumulation technical indicator can confirm price movements.

The chart below of the Russell 2000 e-mini futures contract shows examples of these divergences, both bearish and bullish:

The E-mini Russell 2000 future made a lower high; this move lower was confirmed by the Volume Accumulation indicator which made a lower high as well.

Low #1 to Low #2

The emini futures contract made a lower low; however, the Volume Accumulation indicator did not confirm this move. Instead, the indicator made a higher low, a bullish divergence suggesting that the bottom had arrived in the price of the futures contract. This bullish divergence was a strong indication for traders to lessen the size of their short positions or even buy to cover all their short positions.

Low #3 to Low #4

The Volume Accumulation indicator confirmed the price increase in the e-mini future by making a higher low. During periods of confirmation like this, traders feel much stronger about stock or futures positions that are held in the direction of the major market trend.

The Volume Accumulation is a very useful technical analysis tool that combines both price and volume. Other similar technical indicators include Chaikin Oscillator (see: Chaikin Oscillator) and Money Flow Index (see: Money Flow Index).