Analyze Volume in the Futures Markets

While much of technical analysis focuses on price action, volume analysis can be just as important when it comes to understanding market trends and sentiment. Volume typically refers to the number of contracts traded for one day or trading session. You can think of volume as a vote for the direction of the trend.  

When a trader places an order to buy or sell, the expectation is that the market will go up or down, and the size of each order adds to the total trading volume for that day. Generally, higher volume represents greater validation or confidence in the current price direction. 

The standard volume study is shown as a histogram chart usually underneath a price chart.  

These bars represent the number of contracts traded for each bar time interval in that chart, e.g., 10-min, daily, weekly, or any bar timeframe. 

• If volume is increasing during a trend, it could be reflective of a conviction in the direction by market participants. 
• If price is trending on weakening volume, it might indicate low conviction and a weakening or reversal of the current trend.

By applying a simple average to the volume indicator, you can compare the volume for any single bar against that average, making it easier to spot higher or lower volume bars. 

• If a significant price move occurs with higher-than-average volume, the higher volume would be a confirming signal.
• If a significant price moves occurs with lower-than-average volume might indicate less trader conviction in the price move. 

Often a spike in volume above the average volume, on a large range up or down bar, can indicate a new surge in price action, either a sharp trend reversal or continued follow through in the direction of the current trend.

Volume Weighted Average Price, or “VWAP” as it is known, combines volume and price for a single trading day to create a set of plotted lines on the chart that can be useful in identifying key areas of support and resistance.  

The center VWAP value is calculated by multiplying the price of each trade by the volume of each trade. These results are then summed up and divided by the number of total contracts traded on the day.  This dynamic approach gives more price weight to those trades with greater trade size.  
  
The Order Flow VWAP available in NinjaTrader provides further market insight by plotting multiple standard deviation bands from the center VWAP. These outer bands can serve as additional support and resistance levels as well as a potentially overbought or oversold indication.