There are many approaches to the analysis of the foreign exchange market and the formation of trading strategies. Recently, a volume indicator has been widely used for these purposes, based on indicators of the number of completed transactions for a certain time interval. This is a key indicator, as it provides an opportunity for traders to determine the degree of liquidity of an asset.
Basic principles
In the foreign exchange market, special indicators of the volume of purchase and sale are used very actively. They allow you to draw parallels between trade transactions for a certain time. Some of them are able to reflect the spread of the bar. The basic principles of working with volumes are as follows:
- Accentuated price movement within the foreign exchange market is necessarily associated with a significant increase in transactions.
- Large volumes are able to create large traders in the form of national and commercial banks or specialized funds.
- Through the dynamics of transactions at a certain point in time, one can understand the interests of active trade representatives.
Interpreting a graph of the volume indicator is quite simple. With an increase in the number of transactions, the histogram bar rises, and with a decrease, it decreases. There are no numerical values on the screen. Everything is determined visually.
What do the signals show?
The reflected signals are not always unambiguous, since volumes can show the number of transactions with an unknown amount of money. Therefore, it is not clear where the finances were headed. They could go for sale or purchase. In this regard, people appear who do not support this approach to trade.
However, there are certain patterns in the interpretation of volume:
- Growth on an uptrend may indicate the presence of buyers with an interest in acquiring a traded asset at the set rate. This means that the existing dynamics with a high degree of probability will be supported in the near future. The price will continue to rise.
- A decline in the same trend suggests the market is entering another state called overbought. The current market price does not suit most buyers, so we can expect a reversal of the situation in the opposite direction. There is a gradual increase in the number of transactions for sale, but they are not yet able to reverse the trend.
- Growth in a downward trend largely determines its further continuation. If the level of the volume indicator shows a decrease, then a change in market sentiment is possible in the near future.
Such meters perform best when they break down certain levels. They help to understand the truth or falsity of a possible increase or decrease in the price beyond the established line. If the volumes grow during the breakdown, then there is no doubt in its onset. A decrease in the number of operations may indicate a false breakdown.
Vertical indicator
Under the vertical type trading volume indicator is meant accounting for data on the number of completed purchase and sale transactions, expressed in the form of columns located under the price chart. Each of them indicates the number of transactions performed for the interval reflected in the terminal.
The vertical indicator determines the mood of market participants at the moment. After analyzing the resulting chart, you can understand which asset traders are most interested in. This tool demonstrates that the active interaction of participants at a specific price level has begun .
The culmination points of sales and purchases are of no small importance in the study of vertical volume charts. In this situation, an increase in the number of transactions by about 5-10 times is noted, if we take into account the average turnover. If the climax appears directly in the direction of the trend, then it should not be used as a signal to enter any position.
Horizontal indicator
The analysis in this case is done to determine the interest of bidders to the level, while all transactions performed for a certain period are taken into account. Usually a histogram of indicators showing volumes over a certain period of time is formed on the left. At each transaction, the number of exchange instruments that was purchased or sold is added to the line.
The more operations are carried out in the immediate vicinity of a certain level, the more important is the price level for traders. The maximum value for a certain period is called the cost zone.
Over a long period of time, the price varies. However, the horizontal volume allows one to note liquidity flows over long periods. You should always think about where the trade is compared to the large volumes of the previous segment.
Cluster Type Indicator
In this case, the volume indicator involves the analysis of the candle on the chart. It clearly demonstrates the number of transactions completed at a certain price during the construction of the chart element. If you add up the volumes for the whole day, then a horizontal histogram is formed.
In cluster analysis, point emissions of the maximum number of operations play an important role. A comparison of volumes taking into account the difference in prices makes it possible to find large infusions of cash. Through clusters, you can find a significant level of support and resistance.
Names of used meters
To find the best volume indicator, you need to familiarize yourself with the most popular of them. The table proposed in the article presents those measures of the number of transactions that are widely used among traders. They have proven themselves from the best side.
Title | Description |
Volumes | After adding the indicator, a separate field appears at the bottom. It reflects red and green bars. In an uptrend, an increase in volumes signals a continuation of the situation in the market, and in a downtrend, a reversal. |
ON BALANCE VOLUME | The main function of this product is to determine the balance of transactions. Allows you to predict the duration of an existing trend. |
Better Volume | The histogram bars are painted in four colors, each of which signals a market situation. It can be attributed to the most informative indicators of all existing. |
Why failures in some situations
Not always used instruments of perfect deals reflect the exact picture. This is due to the fact that all prices without rating priorities are fully taken into account. And they are available. However, indicators allow you to conclude transactions with good mathematical expectation. The more parameters will be considered before making a purchase or sale of a lot, the higher the chances of a successful result.
In conclusion
Serious traders do not trade in the foreign exchange market without volume indicators. If they are not a 100% guarantee in achieving the intended result, then they can draw certain conclusions regarding the most important points in trading. With a competent approach, indicators can help in making high profits. They can be successfully combined with other methods of technical analysis.