Volume is the “life blood” of any active trading market. We use the Volume Meter to determine whether there is a normal daily volume flow or if the volume has dropped off sufficiently to cause a possible choppy or range bound market.
To build a Volume Meter open a chart on NinjaTrader with a 1 minute time period. We always look at contract size of the volume coming in on a 1 minute basis.
Then add the VOLMA Indicator (Volume Moving Average) from the Ninja Indicators file to measure the smoothed volume over an 8 period basis.
We then add the ADX indicator which is a valuable tool developed by the brilliant Welles Wilder for determining whether a market may turn choppy or range bound. We use a simplified version of ADX which is suitable for our Volume Meter. If you wish to learn more about the ADX indicator you can go to this link
To build the Volume Meter just follow these steps:
1) Open a 1 minute NQ chart for use with our Boomerang Day Trader system
2) Add VOLMA indicator, set to 8 period, under “Plots” set to black color, Bar plot style and 3X width
3) Add Volume Up/Down indicator with plots set to Bar and 5X width
4) Add ADX indicator using 14 period and set “plots” to Bar 3X width
5) Add “Constant lines” indicator to the Key levels on VOLMA at 300 and 700 for NQ as shown on the chart above. Adding Constant lines make the line levels permanent on the chart until changed or moved.
6) Add “Constant lines” indicator to ADX at 20 and 12 levels
7) When your chart looks like the example above then click OK to Save and then Save the Chart to Templates so you always have these configurations ready.
*Note: you can erase the labels on each indicator by clicking on that area and backspacing over the label to make it not show up on the chart like the example.
How to use the Volume Meter.
All we are doing is glancing at the Volume Meter regularly like any of the other Boomerang Day Trader Indicators. We just want to see that volume is trading at sufficient levels to accomodate our trades.
* Look for regular NQ volume to trade between 700-1000 contracts on an 8 period VOLMA basis. If it drops off below 300 this is an early warning that the market has less participants and may turn a bit choppy or range bound. Compare to individual 1 minute volume.
*Watch for ADX to hold generally above 20 for a regular trending type environment. Below 20 is OK but use Caution. ADX dropping under 12 is a strong caution of a choppy or range bound market.
*If you see the market trading at regular volume levels and then suddenly over a short period of time dropping down under the 300 level this is a caution that the market may stagnate in a range bound area.