ITC – Volume Activity Charts (VAC)

What Are Volume Activity Charts (VAC)?

The Volume Activity Charts (VAC) is a tool developed by InTouch Capital Markets to assist with technical analysis.  It provides a new overlay to complement more traditional technical analysis techniques by highlighting key areas of recent high volume trading activity.  InTouch Capital Markets use VAC as one input into its more comprehensive technical analysis product – the Technical Dashboard – that we produce daily for our Fixed Income clients (sample at bottom – VAC added on the top right)

Technical analysis is just a small part of what InTouch Capital Markets provides its clients.  We provide information, analysis and commentary on all potential market drivers of the Fixed Income and FX markets.

How Does It Work?

Everyone agrees, the most important indicators in technical analysis have always been Volume, Price and Open Interest. Although Volume is an extremely important component of technical analysis, the way this indicator is normally added to charts (normally columns at the bottom) has always limited how easy it is to use and visualise as an important indicator. Thus most technical analysis concentrates purely on price action to determine important technical levels. Our aim was to create a new type of price/volume chart that could display volume and price simultaneously in an easy-to-read manner.

VAC displays volume intensity directly with the price candles – high volume areas are shown in red decaying to purple and then white over time. On the y-axis (instead of the normal x-axis) the total amount of volume at each price level is displayed as a histogram. This new method of volume display enables market participants to quickly identify areas where large volumes have previously traded both above and below the current market level.

Our technical dashboard also includes a table summarising nearby volume peaks above and below the market (again, see example below).  Also included in this table are important yield levels and their corresponding price.

Levels with extreme volume can be used to identify areas where market participants have decided to actively initiate/close positions. Strong volume moves at key price points are therefore often used by active traders to identify key areas of support and resistance. These in turn may generate strategic buying/selling signals when these areas are revisited.

Examples of high volume levels and their use.

VAC used to identify location of resistance and support levels:

Bund Chart in March (above) shows previous high volume area located just below 168.00 creating a zone of resistance at which failed to breach at the first attempt

VAC used to identify consolidation areas such as flags, pennants:

The same graph shows areas of high volume before the market either takes a leg lower or reverses

Example InTouch Technical Dashboard