Volume is an indicator of how much of a given financial asset has been sold in a given period of time. This is a very powerful tool, but it is often overlooked because it is determined by the simplest indicator. Information about it can be found anywhere, but few traders or investors know how to use it to increase their profits and minimize the risk at Forex. The volume indicator of buyers and sellers can help with this without much effort on the part of the trader.
For each buyer, there must be a market participant who can sell him shares, and for the seller, there must be a buyer, so that they can complete the transaction. The confrontation between sellers and buyers for the best price in all different time frames creates a movement from which fundamental and technical long-term factors flow. Using volume to analyze stocks (or any financial asset) can help increase profits as well as reduce risk.
Basic volume guidelines
When analyzing the volume, there are certain recommendations that you can use to determine the strength or weakness of movement. Most traders tend to join strong trends and not take part in transactions in which the movement is weak. However, these recommendations do not work in all situations, but may assist in making trading decisions. Any indicator of the volume of Forex transactions can help with this.
Market Interests and Volume
Market growth should increase over time. Buyers demand an increase in the number of offers and demand so that prices become more profitable. The increase in value and decrease in volume indicate a lack of interest, and this is a warning about a possible reversal. The essence of this phenomenon is that a drop in price (or increase) in a small volume is not a strong signal. A decrease in value (or growth) over a large volume serves as a more significant signal that the situation has changed significantly.
Market movement and volume
In a rising or falling market, you can see relevant trends. This is usually a sharp movement in price, combined with a sharp increase in volume, signaling a possible end to the trend. The participants, who expected the changes, and now fear to suffer losses, will begin to make deals in bulk, and thereby the number of buyers will increase dramatically. The fall in prices eventually crowds out a large number of traders from the market, which leads to volatility and an increase in volume. You may notice a decrease in volume after its rise in these situations, and its further changes over the next days, weeks and months can be analyzed using various charts and indicators of Forex trading volume. How does this work?
Bull trend
Using volume indicators on the Forex can be very useful for determining bullish trends. For example, imagine that the volume increases when the price drops, and then it moves higher, and then goes back. If the value when moving back remains higher than the value of the previous minimum, and the volume decreases with the second decrease, then this is usually defined as a bullish trend.
Change in volume and price
After a long price moves higher or lower, if it starts to fluctuate with little movement and large volume, this often indicates a reversal. Such a change is able to fix any volume indicator on the "Forex".
Volume and breakouts versus false breakouts
At the initial break from the range, an increase in volume indicates a quick movement. A slight change or decrease indicates a lack of demand and a greater likelihood of a false breakthrough.
Forex Volume Indicators
Volume indicators can be represented as mathematical formulas that are visually presented on the most commonly used graphic platforms. Each of them uses a slightly different formula, so traders should apply the one that is most suitable for their personal market approach. Indicators are not required, but they can help in the decision-making process. Today, many of these tools are used, so the choice should be made after careful study.
VSA-Colored Volume
Volume indicators on the Forex VSA differ from other instruments in that in addition to the standard histogram, moving average indicators are also used . Moreover, the settings include several different time periods.
Thanks to such components, the tool is able to assist in determining market sentiment and price changes.
On-Balance Volume (OBV)
OBV is a simple but effective indicator of volume on the Forex. Starting from an arbitrary number, the volume is added and subtracted depending on market promotion. This displays the total amount and shows which stocks accumulate over time. It can also show discrepancies (for example, when the price rises, but the volume increases more slowly or even begins to fall).
Chaikin money flow
This indicator is based on the following principle. A rise in prices should be accompanied by an increase in volume; therefore, the calculation formula focuses on an increase in volume. When prices reach the upper or lower limits of their daily range, a value is calculated for the corresponding strength. When the closure is at the top of the range and the volume expands, its values will be high. When it is located in its lower part, the values will be negative.
This indicator can be used as a short-term tool, since its indicators are constantly fluctuating. Most often it is used to observe the discrepancy.
Klinger Volume Oscillator
This tool works on the basis that fluctuations above and below the zero line can be used to help other trading signals. The Klinger Volume Oscillator summarizes the volumes of accumulation (purchase) and distribution (sale) for a given period of time. For example, it can display a negative number, which is calculated in the midst of a general uptrend, and followed by an increase above the trigger or the zero line. The volume indicator will remain positive throughout the price trend, but a drop below the trigger level will immediately display a short-term reversal.
The bottom line volume
An extremely useful tool as there are many ways to use it. There are basic recommendations that can be applied to assess the strength or weakness of the market, as well as to check whether the volume confirms the price movement or signals a cancellation. Some experts claim that this is the best indicator of Forex volume.
Better volume
Compared with the above, this tool is improved, since it works on the basis of the tick volume. Immediately after launch, the indicator estimates the current volume, as well as the spread of the candle, by comparing them with previous indicators. The results are displayed as signals showing the spread and volume. Red lines indicate a large volume. As a rule, it appears at the beginning and end of growing trends or when correcting a dipping trend.
White lines indicate a large volume, characteristic of a bearish trend (its beginning and end), and also sometimes occurs when correcting the upward direction.
Yellow lines indicate a small volume, and green lines indicate a large volume with a low spread.
Final word
Indicators can be used to help the trader in the decision-making process. In short, volume is not an accurate input and output tool, but with the help of indicators, input and output signals can be fixed by viewing the price action.
Nevertheless, the price can suddenly stabilize, and therefore indicators of the Forex trading volume, as a rule, should not be used in isolation. Most of them give more accurate readings when used in conjunction with other signals.