Volume Divergence examples were prevalent on the Swiss Franc this morning. All the different types of volume divergence examples in one single picture, if you were using the Directional Volume indicator that shows total buyers, total sellers and who won the price war at the close of the bar.
Volume Divergence Examples on the Swiss Franc
First, price retraces to the ATR. The TradersHelpDesk Directional Volume shows that buyers decreased (volume divergence). This was the first entry into the downtrend.
Second, price retraces again to the ATR stop (based on the Average True Range algorithm). As price reaches the ATR, the delta (hash mark) shows that sellers stepped in because it flips below zero (volume divergence or a shift in volume momentum). This generates a second entry into the downtrend.
Third, price again retraces to the ATR and again sellers step in. Plus, the height of the volume bar shows that buyers gave it everything they had but were not rewarded (Points A and B, which is another type of volume divergence). In other words, it looks like buyers were running through the door but price failed to make a new high. This is also a type of divergence as volume is going in one direction and price is doing exactly the opposite (higher volume, lower price).
As simple as volume divergence looks, it takes a a lot of studying to learn to recognize it on the live edge without the Directional Volume indicator, which is available for TradeStation, NinjaTrader and Multicharts. However, once you do, this knowledge and skill is worth thousands of pips because it happens all day long on any of the markets. After learning to spot these instances of volume divergence, you will truly understand why volume is a leading indicator.