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Volume Accumulation Divergences

Volume Accumulation

  1. Volume Accumulation Defined
  2. Volume Accumulation Divergences

A trader might view any increase or decrease in price with little volume with skepticism. The Volume Accumulation indicator attempts to expose 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 attempts to confirm price movements.

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

Volume accumulation may confirm price movement or warn of divergences

High #1 to High #2

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 may have arrived in the price of the futures contract. This bullish divergence may have acted as 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 might feel stronger about their stock or futures positions that are held in the direction of the major market trend.

The Volume Accumulation is a 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).

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