Volume Price Trend Indicator (VPT)
What Is a Volume Price Trend Indicator (VPT)?
The volume price trend (VPT) indicator decides a security's price direction and strength of price change. The indicator consists of a cumulative volume line that adds or deducts a numerous of the percentage change in a share price's trend and current volume, contingent on the security's vertical or descending developments.
Illustration of the Volume Price Trend Indicator
Understanding the Volume Price Trend Indicator (VPT)
The volume price trend indicator is utilized to decide the balance between a security's demand and supply. The percentage change in the share price trend shows the relative supply or demand of a specific security, while volume demonstrates the force behind the trend. The VPT indicator is like the on-balance volume (OBV) indicator in that it measures cumulative volume and gives traders information about a security's money flow. Most charting software bundles have the VPT indicator included.
Trading With the Volume Price Trend Indicator
Signal Line Crossovers: A signal line, which is just a moving average of the indicator, can be applied and used to create trading signals. For instance, a trader might buy a stock when the VPT line crosses over its signal line and sell when the VPT line passes below its signal line.
Confirmations: The VPT indicator can be utilized in conjunction with moving averages and the average directional index (ADX) to confirm trending markets. For example, a trader could buy a stock on the off chance that the 20-day moving average is over the 50-day moving average and joined by rising VPT indicator values. Conversely, the trader might choose to sell assuming the 20-day moving average is below the 50-day moving average and the indicator's values are falling.
The ADX likewise measures trend and momentum and can be utilized with the VPT indicator to confirm that a market is trending. ADX readings over 25 demonstrate that a security is trending, while readings below 25 show sideways price action. In this way, a trader could buy when the ADX is over 25 and the VPT line is over its signal line. They could sell when the ADX has a value below 25 and the VPT line is below its signal line.
Divergence: Traders can utilize the VPT indicator to spot technical divergence. Divergence happens when the indicator makes a higher high or a lower low, however the security's price makes a lower high or a higher low. Traders ought to place a stop-loss order over the latest swing high or below the latest swing low to limit risk.
