Trading using volume divergence for entries allows traders to enter utilizing the least amount of capital for risk as possible.  And, since volume is a leading indicator, it only makes sense to use it to limit potential risk on entry.  First, an understanding of what volume divergence is all about.  If price is making new highs, then buying volume should remain strong.  Or, if price is making new lows, then selling volume should remain strong.  However, the issue is that most volume indicators don’t really show buyers or sellers in the raw.  Instead, they add moving averages or other algorithms to try and decipher the buyers and sellers.  The TradersHelpDesk Directional Volume actually shows you the raw numbers of buyers and sellers, as well as who actually controlled the bar at the end.

Trading Using Volume Divergence for Entries

For example, on the chart below (which is a forty-five minute Crude chart), each time price retraces to the Average True Range stop indicator (plus sign above price), buyers weaken (blue volume bars indicate highs).  In other words, as price was going up to the Average True Range stop, buyers diminished.  This is buying divergence at the Average True Range Stop and indicates that price will actually go back down and possibly make a new low.  Click on the chart to expand the view.

Trading Using Volume Divergence for EntriesThe TradersHelpDesk Directional Volume is the only one of its kind and plots the volume either above zero for buyers or below zero for sellers.  Then a hash mark is plotted to indicate who controlled the bar at the close. This enables intraday traders to truly see what is going on between buyers, sellers, and price.  Unfortunately most data providers limit the amount of data needed for this type of analysis and, therefore, we can only use the Directional Volume indicator on intraday charts (anything up to 1440 minutes which is one full day).