Full Review of the Volume Flow Indicator for Binary Options
The volume flow indicator is an advanced form of volume analysis that compared an exponentially smoothed directional volume value to an average volume to highlight divergence in trending stocks.
Volume is an often overlooked item that can have a tremendous impact on your trading. I know you know that trading with the trend is a good thing to do; the trend is where the volume of people are. If, relatively speaking, more or less people than average are trading on your perceived signal it could mean the difference between false signals, whip saws and profits. The Volume Flow Indicator is one indicator that attempts to do this. It is similar to On Balance Volume but instead of comparing the closing prices of adjacent bars it uses a more complex formula to compare positive and negative volume changes to average volume over time. The typical period used on this indicator is 50, making it more of a longer term analytical tool, but it can be adjusted to fit your own needs and uses.
How The Volume Flow Indicator Works
The Volume Flow Indicator, or VFI, compares a change in “typical” prices that uses a cut-off based a standard deviation. The typical price is the average of the high, low and close of the day. After that volume is taken into account and assigned a value of either positive or negative. The final results are smoothed by a 50 day moving average to create an oscillator that moves over and under a central zero line. As the plot moves any reading above zero indicates long term buying while a reading below zero indicates long term selling. The indicator is used to measure trend strength, confirm trends and to spot divergences. The cut off value mentioned above is used to limit how much volume is allowed in the formulation. Lower settings will prevent wild swings in volume from having too strong an affect and weed out potential false signals.
Why Volume Flow Indicator Does Not Suck
This indicator does not suck. It is a great study of volume and highly valuable to binary traders. The indicator is useful for determining volume trends and trend strength but also in many other ways. Basic analysis is when the indicator is above 0 its trade bullish, when it’s below 0 trade bearish. After that it is possible to get very detailed with it. It can generate overbought and oversold levels like other oscillators, confirm direction with convergence, foreshadow reversals through divergence and even produce signals such as Head&Shoulders patterns. The indicator itself is fairly easy to use, there is only one plot line and one signal line so it is one that I can recommend to newbies.
Why Volume Flow Indicator Might Suck
First, it might suck because no indicator is infallible. After that the major reason why it might suck is because volume is not included with every asset. There are some markets which don’t or are unable to provide volume information. In these cases the indicator is completely useless. Some examples I can immediately think of are indices that don’t track volume such as the SPX and commodities like gold that trade 24/7 around the world. Other than that I think this is a solid indicator.
My Final Thoughts On The Volume Flow Indicator
This is a nice tool. I like oscillators in general and this is one that can be easily picked up and used by a newbie, unlike RSI which comes with wilder fluctuations and more complex signals. The VFI is also nice because it is a longer term indicator that can be used across a wide variety of time frames. I also like it because it is a versatile tool in other ways too. I love convergence/divergence analysis, they make great signals. I also love chart patterns and use them for signals when they appear in an indicator such as this. Overall it is a good tool, easy to use, versatile and adaptable to binary options. My only caveat is to use it with other analysis such as candlesticks, support and resistance, moving averages, trend lines, MACD and/or a combination of the above.
For more information on the Volume Flow Indicator click here.