Volume Price Trend

Description:

The Volume Price Trend (VPT) indicator, developed by Buff Dormeier, is a technical analysis tool that assesses the relationship between price and volume in the stock market. Calculated by cumulatively adjusting volume based on price movements, it reveals whether volume precedes price changes. A rising VPT indicates increasing volume on upward price movements, signaling strong buying pressure, while a declining VPT suggests heightened volume on downward price moves, indicating selling pressure. Traders often seek divergence between the VPT and price chart for potential trend reversals, utilizing it alongside other indicators for confirmation. However, prudent use of the VPT requires understanding its limitations and considering broader market conditions for informed decision-making.

Input Parameters:

Signal: The signal line is a 21-day EMA. As a moving average of the indicator, it trails the MACD and makes it easier to spot MACD turns.
MA Type: Select the moving average type such as EMA, SMA, or HullMA.
Price Source: The specific data points (such as open, high, low, or close) from each candle in a financial chart that an indicator uses for mathematical computations, enabling the calculation of metrics like the average over a specified period.

Use Cases:

Trend Confirmation: Traders use the VPT to confirm the strength of an existing trend. For example, if the price of a stock is trending upward, but the VPT is also rising, it suggests that the uptrend is supported by increasing buying volume, reinforcing the bullish outlook. Conversely, if the price is trending downward, and the VPT is also declining, it validates the bearish trend, indicating sustained selling pressure.
Divergence Analysis: The VPT can be employed to identify potential trend reversals by examining divergence between the indicator and the price chart. For instance, if the price of a stock is making new highs, but the VPT is trending downward or failing to confirm the upward movement, it could indicate weakening buying pressure, foreshadowing a possible trend reversal to the downside. Conversely, bullish divergence occurs when the price makes new lows, but the VPT is rising, signaling a potential reversal to the upside.
Volume Breakouts: Traders utilize the VPT to identify volume breakouts or significant shifts in buying or selling pressure. When the VPT experiences a sudden spike or surge in either direction, it suggests a notable increase in volume accompanying a price movement. This can be interpreted as a signal of increased market participation and potential continuation of the current trend. Volume breakouts identified by the VPT can help traders anticipate significant price movements and adjust their trading strategies accordingly, such as entering or exiting positions based on the strength of the breakout.

This feature can be used in: