Research on the Effectiveness of Technical Indicators with the Volume

Abstract

The paper researches on the effectiveness of technical indicator with the volume by choosing the volume- weighted moving average (VWMA) which consists of the simple moving average (MA) and volume based on the 2139 stocks from January 1, 2003 to January 1, 2013 in China's A- share market. There are four criteria to evaluate the volume- weighted moving average: sensitivity, reliability, risk and benefits. Comparing the performance of VWMA and MA in the sample stocks, there are several advantages by adding volume information to technical indicators: issue more trading signals, increase the proportion of profitable trading, reduce the average drawdown, and improve investment returns. Technical analysis indicators are applied extensively in stock market and frequently utilized as tools to forecast the trend of the stock price. But the results are often not satisfactory when investors use the technical analysis indicators which are only related to the stock price and not involve volume to forecast the trends. Volume is a number that investors willing to buy the stock at a price and shows the force of rose or fell. The volume is also on behalf of the support and pressure in stock market. Therefore the relationship between price and volume in stock market is always a hotspot in the financial sector and has been studied by a large number of scholars. In the paper, we research on the effectiveness of technical indicator with the volume on the basis of the conclusions about the relationship between price and volume and hope that the conclusions can be as the reference basis for the technical analyst when they study the stocks..