Volume Moving Average (VMA) shows the average value of a security's volume over time. IQ Chart uses an Exponential Moving Average. An exponential moving average gives more weight to recent volume and is calculated by applying a percentage of the current period's closing volume to the previous period's moving average. The longer the period of the exponential moving average, the less total weight is applied to the most recent price. The advantage to an exponential average is its ability to pick up on volume changes more quickly.

One factor to keep in mind is the shorter the time period, the more reactionary a moving average becomes. A 10-day moving average is much more sensitive to moves than a 50-day moving average. However, a shorter period also means that you may have a greater number of false moves within an existing trend, what can be considered "market noise" or a "whipsaw".

The formula for an exponential moving average is as follows:

Exponential Percentage = 2/Time Period + 1

Therefore, a 50-day EMA will have a 3.9 % exponential average. .039 = 2/50 + 1

This means that the most recent day will be weighted 3.9% of the value of the EMA. For a 50-day simple moving average, each day has precisely a 2% weight.

Crossovers can help indicate the dynamics of future price changes. IQ Chart shows VMAs as an overlay, which provides a reasonable visual picture of a given bar's actual volume compared to its Exponential Moving Averages.

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