Volume in Forex and Its Application on ForexBarry Copeland 30 / November / 20 Visitors: 970
Using volume when trading Forex is a very useful thing. When observing volumes, a large number of investments can be identified that have a significant impact on the foreign exchange market. They can tell when to enter a trade or refrain and predict a strong move.
You can add volume display in the MetaTrader 4 terminal as follows: Charts-> Volumes or use the combination of Ctrl and L. You can also use the volume indicators.
Price movements should be considered together with volume. The price is always ahead of the volume and is its indicator. Volumes can be viewed as auxiliary signals, since they are somewhat delayed.
A striking example of volume growth can be seen in the USD JPY pair, when the Bank of Japan adopted a negative interest rate.
Let's consider several options for price and volume behavior.
Price - growing, volume - growing, buy signal
A rise in price and volume indicates a strong uptrend. Entering a continuation trade with a sufficiently large volume is very dangerous, as you can get into a trend reversal.
Price - falling, volume - falling, signal - buy
Sellers are gradually closing positions. Here you need to be careful and pay attention to other signals for a reversal, as you can get into a flat.
Price - rising, volume - falling, signal - sell
A decrease in volume indicates investors' indecision, which may serve as a signal for a reversal. With a decrease in volumes, liquidity also decreases, which causes a slowdown in movement and the formation of flats.
Price - falling, volumes - growing, signal - sellThis situation is observed with a strong downtrend. The danger is the same as with large buy volumes, you can get into a pullback.
Volume is one of the auxiliary indicators for entering a trade; you should not rely on it as the main signal. Use it as an aid for other strong signals. Volume signals are not always unambiguous, since it is impossible to find out the exact volume of investments.