Volume strategy - what is volume
10 / June / 22 Visitors: 651
To determine this, traders should look at the trading volume bars shown at the bottom of the chart. Any price move is more meaningful if it is accompanied by relatively high volume + low volume. Not all types of volumes can affect trading, it is the volume of large amounts of money that are traded on the same day that greatly affects the market.
Volume in the Forex market is probably one of the most important tools for traders. Forex volume is based only on a single pair on a given exchange at a given moment. That is why it is sometimes overlooked.
The number of shares bought and sold each day for a given financial instrument is called the volume. Volume is one of the most accurate ways to measure cash flow. The indicator informs traders about market activity and liquidity, i.e. the higher the trading volume, the higher the liquidity.
According to the chart above, the GBP/USD volume indicator draws quite accurately even when predicting the price picture. By using volume indicators, traders can see if the market has been affected by events such as economic data releases, breaking news.
Note. Overall volume tends to be higher during market opening and closing hours, as well as on Mondays and Fridays. It is usually lower at lunchtime and before holidays.
How to trade with volume
Volume shows how the market is moving: the larger the volume, the easier it is to decide when to buy or sell (volume can't tell the difference between a bear market and a bull market). Volume precedes price action, here are some general steps to follow before making trading decisions.
1. Trend Confirmation
Traders need a growing number and a growing enthusiasm to keep raising prices. An increase in price and a decrease in volume may indicate a lack of interest, this may be a warning of a potential reversal. A fall (or rise) in price on a small volume is not a strong signal. A drop (or rise) in price with significant volume is a stronger signal that something has changed dramatically in a stock.
2. Tiring movements and volume
In a rising or falling market, we usually see movement exhaustion, sharp price movements combined with a significant increase in volume, which signals a potential end of the trend.
3. Bullish Signs
Volume can be useful for identifying bullish signs. For example, volume increases when the price falls, then the price rises, and then falls again. If the price does not fall below the previous low on the pullback, and the volume decreases during the second low, this is usually interpreted as a bullish sign.
4. Volume and price reversals
If, after a long rise or fall in price, the price starts to fluctuate with a small price movement and a lot of volume, this may indicate a reversal and the price will change direction.
5. Volume and breaks compared to Fake breakups
During the initial breakout of a range or other chart pattern, increased volume indicates the strength of the move. A slight change in volume or a drop in volume on a breakout indicates a lack of interest - a higher chance of a false breakout.
6. Volume History
The volume should be compared to recent history. Comparing today's volume with the volume 50 years ago may give irrelevant data. The newer the datasets, the more likely the results are to be relevant.
Initial Level of Volume Trading Strategy
Volume is a handy tool for trending and can be used in a variety of ways. The main recommendations can be used to evaluate the strength or weakness of the market, as well as to check whether the volume confirms the price movement or signals an impending reversal. Volume indicators are sometimes used to aid decision making.