The Volume Rate of Change indicator measures the percentage change of current volume as compared to the volume a certain number of periods ago. The Volume Rate of Change indicator can be used to confirm price moves or detect divergences. The formula for Volume Rate of Change is expressed below:
- [(Current Volume / Volume n periods ago) - 1] x 100
Generally, the Volume Rate of Change is calculated based on 14-periods for input n, but of course can be modified to any trader preferred period. A chart of the 100 ounce Gold futures is shown below with the 14-day Volume Rate of Change indicator:
As the price of Gold was increasing, the Volume Rate of Change indicator was increasing as well, indicating that there was buying interest as prices were rising. When Gold broke above trendline resistance, the Volume Rate of Change indicator surged higher, showing that buyers were extremely interested in buying Gold.
Using volume to confirm price analysis can help a trader make better trading decisions. The section discussing how to interpret Volume would be an excellent addition to this Volume Rate of Change section (see: Volume).
