Many forex traders assume there is no volume in the foreign exchange market. And they would be correct. There is no central exchange, not yet anyway. And even if there were, what would it report?
What there is however is activity, and this is captured as tick volume. After all, volume is simply displaying activity, the buyers and sellers in the market. So for volume read activity, and for activity read volume – simple. The TradingView platform delivers tick data which the Quantum Tick Volumes indicator displays in a more elegant and useful way.
First, the indicator paints the volume bars the same color as the candles on the chart. This means you can quickly match price and volume bars together. If youre trading using volume and price as your core methodology, this is imperative. Your analysis will depend on a fast interpretation of the volume price relationship.
Second, the indicator prints a dynamic midpoint based on the daily data, giving you an instant picture of whether the volume is high, medium or low in the time frame selected. Again, this is essential for correctly analyzing the price volume dynamic. After all, what is average volume in the London session, may be high volume in the Asian session. The dynamic midpoint level reveals this instantly on the indicator, helping you make sense of the highs and lows of each volume bar.
Uncover the secrets of forex trading with the power of volume indicators. In this in-depth guide, you'll learn how these essential tools can significantly enhance your trading performance and read about valuable insights into market activity and trends. Get ready to explore the top four forex volume indicators and learn how to use them to elevate your trading strategy.
A volume indicator is a technical analysis tool that measures the number of transactions or trade volume occurring within a specific time. It helps forex traders gauge the strength and conviction behind price movements as well as identify potential reversals and breakouts. High trading volumes typically indicate strong price movements, while low volumes may show weak price action or poor interest in the market.
As of April , the global forex market boasted a daily trading volume of about $ trillion, dwarfing other financial markets. With this high liquidity, the forex market makes buying and selling currencies easy, attracting investors of all types. The forex market is open 24 hours a day, 5 days a week, and with trading conducted electronically, traders can participate from any corner of the globe.
This sheer volume emphasizes the significance of understanding and utilizing volume indicators to make calculated decisions in the fast-paced, highly liquid FX market.
Volume indicators play a crucial role in forex trading by providing insight into buying and selling pressure as well as the liquidity of currency pairs. Using volume analysis, traders can better understand price movements, detect trends and assess the strength of market sentiment.
In forex trading, volume refers to the total number of contracts or lots traded in a particular currency pair within a period. Calculating volume in forex trading is a complex task, as it typically reflects the volume specific to your broker rather than the entire market. This process differs from stock trading, where volume is readily available. Traders can use volume indicators based on tick data, which is the number of price changes in a period.
To give wings to your forex trading, let's explore the top five volume indicators.
Tick volume measures the number of price changes (ticks) within a given time interval, such as a minute or an hour. Specialized software that tracks tick data from various forex brokers is used to count the price changes. Tick volume indicator is a common way to estimate trading volume in forex since there are no centralized exchanges where actual trading volume data can be obtained.
Some brokers may not provide tick data, and as a result, it’s not a perfect representation of actual trading volume. However, tick volume offers valuable insights into market activity and can help identify potential breakouts or reversals.
To use tick volume, plot the indicator on your chart and observe the histogram bars. High tick volume bars signal increased market activity, suggesting likely breakouts or trend continuation. On the other hand, low tick volume bars may signify weakening trends or potential reversals.
On-balance volume (OBV) is a momentum-based volume indicator that relates price and volume to identify buying and selling pressure in the market. The OBV is determined by adding the volume of a period when the closing price is higher than the previous close and subtracting the volume when the closing price is lower.
The resulting OBV line can be used to confirm price trends or identify potential divergences.
When you plot the OBV indicator on your chart and the line rises with the price, it confirms the trend (uptrend). However, a divergence may be a sign that buying pressure is increasing and a price reversal may be imminent.
The Money Flow Index (MFI) is a volume-weighted indicator that measures the flow of money into and out of a currency pair. Since it considers both price and volume, the MFI provides a more comprehensive view of buying and selling pressure.
The MFI calculates the ratio of money flow (positive and negative) over a specific period, typically 14 days. The money flow is calculated by multiplying the typical price (average of high, low and close) by the volume. The positive money flow is then added up for the period and the negative money flow is subtracted.
The resulting value is then plugged into the MFI, which ranges from 0 to , with values above 80 considered overbought and below 20 oversold. You can use the MFI to identify potential entry and exit points based on overbought and oversold conditions and spot divergences that may signal trend reversals. For example, if the MFI is dropping while the price is on the rise, it may indicate that buying pressure is falling, and a price reversal may be coming.
The Accumulation/Distribution (A/D) Line measures the cumulative flow of money into and out of a currency pair. The A/D Line tracks the relationship between price and volume over a specific period. It is calculated by adding or subtracting the volume of an asset based on the direction of price movement.
When the price of an asset closes higher than the previous period's close, it is considered to be in accumulation. In this case, the current period's volume is added to a running total, which is the A/D Line. Conversely, when the price of an asset closes lower than the previous period's close, it is considered to be in distribution. Here, the current period's volume is subtracted from the running total.
You can use the A/D Line to confirm trends and predict potential trend reversals. If the A/D Line is moving in the same direction as the price, it confirms the trend. If it diverges, it may indicate a potential trend reversal because of dropping buying pressure.
The Chaikin Oscillator is a technical indicator that is used in the forex market to gauge the strength of the trend and measure the volume of trades. It was developed by Marc Chaikin, a renowned Wall Street analyst and trader, who recognized the importance of volume in analyzing market movements. The oscillator is a versatile tool that can provide traders with valuable insights into market trends, which can help them make informed trading decisions.
The Chaikin Oscillator is calculated by subtracting the period exponential moving average of the Accumulation/Distribution Line from the three-period exponential moving average of the same indicator. The result is then plotted as a histogram on a chart, with the zero line serving as the neutral level. If the oscillator falls below zero, it indicates a bearish trend, while readings above zero signal a bullish trend. The size of the bars reflects the volume of trades, with bigger bars suggesting higher trading activity and more significant price movements.
One of the benefits of using the Chaikin Oscillator as a forex volume indicator is its ability to identify divergence between price and volume. For instance, if the price is moving upward but there is a decrease in trading volume, it may indicate weaker buying pressure and signal a potential reversal. Conversely, if the price is decreasing and volume is increasing, it may point to stronger selling pressure and a more extended trend. By analyzing price and volume simultaneously, the Chaikin Oscillator can help traders avoid false signals and improve their overall trading results.
securely through eunic-brussels.eu's website
securely through eunic-brussels.eu's website
Best For:
Forex Trading in and Outside the U.S.
CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 68% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
securely through HYCM Capital Markets's website
securely through HYCM Capital Markets's website
securely through IG Markets's website
securely through IG Markets's website
Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 69% of retail investor accounts lose money when trading spread bets and CFDs with this provider. You should consider whether you understand how spread bets and CFDs work, and whether you can afford to take the high risk of losing your money.
securely through XM Group's website
securely through XM Group's website
Best For:
Beginner forex and CFD traders
Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. % of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
Mastering volume indicators is crucial for success in the forex market. Volume indicators provide critical insights into market trends, helping traders to make more informed trading decisions. These indicators track the number of shares traded in the market over a specific period, indicating the level of market activity.
Traders use volume indicators to identify market reversals, monitor investor sentiment and determine market volatility levels. They can also be used to confirm price trends and identify potential breakouts or breakdowns in a forex pair's movement. Understanding volume indicators can help traders to identify potential turning points in the market, enabling them to make trades with higher probabilities of success and reducing the risk of losses.
Understanding and applying these top forex volume indicators can significantly enhance your trading decisions. With these tools, you can more accurately assess market sentiment and place trades accordingly.
A
Key volume indicators in forex include Tick Volume, On-Balance Volume (OBV), Money Flow Index (MFI) and Accumulation/Distribution (A/D) Line.
A
There is no one-size-fits-all answer, as each trader’s preference may vary. Popular options include Tick Volume, On-Balance Volume (OBV), Money Flow Index (MFI) and Accumulation/Distribution (A/D) Line.
A
Yes, volume indicators can provide valuable insights into market activity, trend strength and potential price reversals, making them essential tools for data-backed decision-making in forex trading.
Behind any price movement in the market is a specific person with a certain amount of money, trading target, and personal psychology.
At the same time, the market volume is subject to the usual laws of statistics, so the trader needs a technical tool that will show in the trading terminal at least an approximate picture of what is happening in the real market.
Due to its decentralization, the Forex market cannot show us the real (monetary) volume of transactions. Still, it offers information about the number of price changes per unit of time for analysis.
Let's take a closer look at how effective and useful the Volumes indicator is for us.
Initially, goods, and then the rest of the financial assets, were sold on the stock exchange by the principle of auctions, and the trading lot (goods, raw materials, share) were rigidly standardized. In this case, a fixed trade with an optimal (usually maximum) price was considered a trading tick, and a standard volume, respectively, was the tick volume (see Volume and volume indicators).
During the process of the exchange development, direct trading orders to brokers (intermediaries between the exchange and customers), which contained the price of the asset and any, including fractional, quantity, came to replace the auction.
The market price began to be determined by the volume of demand in its classical formulation. That is, if the price offered in the transaction differed from the current market, the transaction became deferred and formed, depending on the direction (purchase/sale), an exchange offer or demand.
The broker put the order into action when the market and order price had the same (or acceptable within the spread) value.
Volumes: MT4 (5) and Thinkorswim.
MetaTrader®, MetaTrader 5®, MT4®, MT5® are the registered trademarks of MetaQuotes Software Corp.
The price multiplied by the desired amount of an asset in the transaction, in total expression, is the tick volume - so the modern market understands it.
What we see today in the Forex terminal represents the number of price ticks per unit of time, where the tick itself is the “trading fact” of the change in the asset price by one base point. The tick works as a statistical counter of fluctuations and is not connected to the amount of money in transactions.
The Volumes indicator shows the total number of trade transactions completed (open and closed) for the billing period.
These data do not reflect the actual amount of money invested by the participants in the purchase/sale. The newcomer's entry on a cent account and a large player, in terms of tick volume, are absolutely equal operations.
deals for lot Volumes will be considered as transactions (superactive dynamics!), and one trading order for lots, as one transaction.
This way, a deal with a large trading volume and a small lot volume transaction will be statistically treated as equal. However, their real impact on the price will be significantly different. One can only hope that the weighted averages of the tick volume correctly reflect the overall dynamics.
The interpretation of the Volumes value is quite simple: if (visually) with an active price movement the volume indicator increases sharply, then it means the growth of active commercial interest in this direction, and it should be “true” rather than market noise. In fact, this indicator is never late.
Remember: the value of Volumes is not a global market indicator. Tick volume displays the number of price changes for the period received from a particular liquidity provider; that is, the values in the terminals of different brokers will differ.
Tick volume is calculated only upon the completion of transactions.
It is assumed that the clients’ transactions are always executed at the best price for them, that is, at a price equal to bid or ask at the time the broker receives the trade order.
Technically, there is always an order execution time (a pause for the broker to send an order to the exchange). Still, the broker must execute the order even if the price changes; accordingly, the tick volume will become different. As a result, the tick volume may be higher than the declared value.
If the client sends the order with a request for an immediate transaction (buy at market price, at any price), the volume is also unknown in advance.
Despite the known quantity and approximate price of supply or demand, pending orders that are declared at prices at the spread boundary may not find a sufficient amount of the opposite interest on the market. Then the tick will be executed at different prices, which will affect the final volume.
Volumes: tick volume scheme in MT4(5)
The tick volume can be estimated only in relation to neighboring ticks − more, less, or a deviation from the average value for the period.
One vertical column of the indicator shows the total volume passed on this bar, even if the price change was insignificant and does not affect the overall dynamics.
The Volumes indicator with minimum parameters is available as a visual service on most trading platforms (see the diagram above), but most often, different versions of external indicators are used and displayed in a separate window as a multicolored oscillator or line.
You can find options with a special information block that separately shows the number of Buy/Sell transactions (TicksVolumes, BuyVolumes, SellVolumes) and the volume dynamics in percent in the network.
Standard version of the Volumes indicator
The volume histogram estimates the trend in height and colour of the oscillator column: red indicates a decrease in the tick volume for the current period compared to the previous one, and green indicates its growth.
The Volumes indicator do not give explicit signals, but their dynamics accurately reflect the current state of the market.
Classical Volumes indicator signals
Trading with the Volumes indicator is a rather conventional mechanism (see How to use Volume profile indicator for trading). The benefit of using such information is not always clear, particularly for beginners, especially since the analysis of price/volume dynamics allows an implicit interpretation.
Volumes + Fractals: confirm a reversal
Let’s briefly consider the standard situations (see Using Indicators), but with the obligatory «or»:
Traditionally, a divergence of price and Volumes histogram are considered a strong reversal signal (see Using Graphic Tools).
Volumes: standard situations
Volume growth with minimal price dynamics means two possible situations:
Volumes: behaviour in the news publication period
The eternal dispute of traders about the values priority of "real" and tick volumes is far from a truce. If the use of real Volumes often requires paid access to stock data, the main problem in analysing the tick volume is the lack of information about the resulting volume direction.
We remind you: if you select analogs of exchange trading assets in the form of CFDs (indices, raw futures, metals) in the Forex terminal — the Volumes indicator will show all the same tick volumes and not the amount of real money in transactions.
Volumes: Moving Average as basic trend
It means that tick histograms cannot correctly determine which transactions (in the amount of money) prevailed in the market at the estimated time of purchase or sale. Moreover, the presence of open interest is not taken into account, that is, already open positions that support the current trend (Swing Trading Charts).
And although practice shows that tick volumes are indispensable for assessing the degree of “nervousness” (volatility) of the market, the Volumes indicator can be used in any strategy, but only to confirm the main signals.
After all the sides of the indicator were revealed, it is right the time for you to try either it will become your tool #1 for trading.
In order to try the indicator performance alone or in the combination with other ones, you can use Forex Tester with the historical data that comes along with the program.
Simply download Forex Tester for free. In addition, you will receive 23 years of free historical data (easily downloadable straight from the software).
Share your personal experience of effective use of the Indicator Volumes. Was this article useful to you? It is important for us to know your opinion.
What is your favorite indicator?
Free eBook Download!Get A Simple 5-Step Momentum Trading Strategy
Looking for the best volume trading strategy? In this article, we teach everything you need to know about volume plus teach a great strategy as well.
With more than 30 years of trading experience combined, our team at Trading Strategy Guides has put together this step-by-step trading guide.
You can take advantage of analyzing the strength of a trend based on volume activity.
The Forex market, like any other market, needs volume to move from one price level to another.
If you want to skip the training about volume and go straight to the strategy click the table of contents.
Ready to get started? Let’s dig deeper into everything related to volume!
The Forex market is the largest and the most liquid market in the world, with 6 trillion dollars worth of transactions performed on a daily basis. If you can master volume analysis, a lot of new trading opportunities can emerge. Using a volume trading strategy Forex traders can improve their win rates and become more consistent traders.
When we have a lot of activity and volume in the market, as a consequence, it produces volatility and big moves in the market. That’s really what most traders need in order to make a profit trading the Forex market or any other market be it stocks, bonds, or even cryptocurrencies.
While you can still make money even in tight-range markets, most trading strategies need that extra volume and volatility to work.
In stocks the volume is the total number of shares that has changed hands.
In forex Volume is the total amount of money that has changed hands in the forex market.
However, In the Forex market, we don’t have a centralized exchange of total volume because we’re trading over the counter. If we look at any trading platform like TradingView, they have a volume attached to their chart. But, since we don’t have a centralized exchange that volume is coming from the feed that TradingView uses.
Each retail Forex broker will have its own aggregate trading volume.
Another thing that most traders don’t realize about forex volume is that, it is tick volume not true volume.
Open Interest is a measure of how many total positions, short or long, are currently held in a market. Are there a lot of positions currently held, or relatively few? – i.e., how much overall current interest is thereby traders in trading this market.
Many people see this as a contrarian indicator because if more traders are buying those could be retail traders but the banks would be selling.
You can find open interest in forex by looking at the community outlook page on myfxbook.
Tick Volume is the total number of transactions that has taken place not the dollar amount. The difference is important because if there are many trades happening but the dollar amount of those trades is small, then we will not get the follow through in price we were expecting.
Volume and open interest are momentum indicators – that is, rather than helping you directly determine the direction of a market, they are designed to help you gauge the strength or weakness of a market move.
Therefore, they are secondary indicators of future market direction. I would never recommend using volume and/or open interest numbers as your sole reason for entering a trade.
These are strictly secondary indicators or trade “filters”, and should only and always be utilized as such.
Factors like volume are useful to confirm your market analysis, but should never form the foundational basis for that analysis. I’ve seen markets go through dramatic, extended price changes with barely a blip of change in either volume or open interest.
And I’ve also seen significant changes in volume and open interest that signaled absolutely nothing – in other words, a market that was stuck in a relatively small trading range, basically going nowhere fast.
However, they can still be utilized to confirm an existing hypothesis that one has about the near-term or even long-term direction of a market. Our volume trading strategy will help you to understand how to do that.
One particular situation in which they can be helpful is when a market has been in a trend, up or down, for quite some time. You have doubts as to whether it will continue its current direction, or begin to fail at current price levels and reverse direction.
In such an instance, a significant drop in volume and open interest can serve as an early warning indicator that a market has just about “run its course”.
Likewise, if volume and open interest remain relatively steady, or even increase, while the market pauses and catches its breath, odds are better that the market will resume its existing trend once it gets moving again.
Volume and open interest are nearly always mentioned together for a very good reason. Whenever using them as market indicators, they are more reliable when both indicators are in agreement with each other. The basic combinations of volume and open interest are as follows:
– Volume AND open interest both decreasing favors lower prices or upcoming trend reversal.
– Volume up, but open interest down, signals a changing market.
– Volume down, but open interest up usually signals a market gathering momentum to move higher. It’s good to keep in mind that if such a push upward fails, then the market is likely to reverse sharply to the downside as all of those newly opened interests get stopped out or dive for cover.
Volume Down and Open interest up could be momentum signal
Volume and open interest numbers tend to diverge when a market’s direction is uncertain, or when there simply is no overall or long term direction (that is, when the market is simply a “trading range market“).
By the way, there’s nothing wrong with a trading range market, as long as you can accurately identify the trading range.
There is often a dramatic increase in volume at market tops or bottoms. It’s basically the market blowing out or exhausting, its remaining interest in price at that level. Therefore, volume can be a useful indicator to help detect market reversals, and significant changes in direction, up or down. Just keep an eye out for that.
The Forex market is a decentralized market, which means that there is no formula for volume or method of keeping track of the number of contracts and contract sizes, such as in the stock market. The Forex market measures volume by counting the tick movements. The logic behind this is straightforward:
a) Price moves up and down in ticks.
b) The Forex market cannot measure how many contracts are sold, but it can measure how many ticks price moves up or down in any given time frame.
c) It can still be measured by measuring how many ticks price moves up and down.
d) Therefore, irrespective of how many transactions have been completed to make the price move, the net effect will be measured.
It is the equivalent of focusing on the next result instead of analyzing the process. The volume measurement in the Forex market is looking at how much price moves within a certain period and it does not care how many or few buying and selling transactions are in fact needed to make that price move 1 tick. All it knows is how many ticks it moved, regardless of the fact if trades were involved or 10,
The volume in the Forex market is segmented, which is the reason why we need to use our best volume indicator.
Price action is always our primary focus and we should never forget that!! Write it down on a piece of paper, if need be, with a thick yellow mark: price is the number 1 measurement! Almost everything is derived from price and calculated based on price, so using price action as the primary source for decisions is only logical.
Using volume to define trading decisions makes sense if it is used as a confirmation. Here are its primary advantages:
If price is reaching new levels of extremes (higher highs or lower lows), but volume is not confirming and supporting those new price levels, then this could provide first warning signals that the trend is weakening (retracement can be expected) or ending (reversal potential, or sideways / range movement). Read more information on how to interpret divergence.
During a consolidation, volume measurements typically are low. If volume picks up upon the break of that consolidation pattern (wedge, triangle, flag, etc), then the volume is confirming a higher chance of a sustainable breakout. Read more on trading breakouts here.
Decreased Volume before a breakout
ACCUMULATION/DISTRIBUTION
Accumulation is a phase when buyers are controlling the market. If the volume is increased when the market is correcting in a downtrend, then this typically means that more buyers are stepping into the market and a reversal could occur. Usually, these are confirmed when:
a) Volume increases compared to the day before but closing prices are higher
b) Price hardly moves down, even though volume has increased
Distribution is a phase when sellers are controlling the market. If the volume is increased when the market is correcting in an uptrend, then this typically means that more sellers are stepping into the market and a reversal could occur. Usually, these are confirmed when:
a) Volume increases compared to the day before but closing prices are lower
b) Price hardly moves up, even though volume has increased
There is an indicator that measures this accumulation/distribution balance and is called Accumulation/Distribution (AD). It is calculated as follows:
AD = ((Close – Open) / (High – Low)) * Volume
If the indicator is falling then it indicates the distribution (selling) of the currency. If the indicator is rising then it indicates accumulation (buying) of the currency.
Below is a list of indicators a Forex trader can choose from.
List of Volume Indicators
The most logical place to start is the volume indicator. This tool calculates the number of ticks in which a currency moves up and down. It is often used in other calculations as well. For instance, the AD methodology mentioned in the paragraph above includes volume as part of its basic parameters. Volume indicator trading can really help a trader to reduce the noise in the markets and get better trade signals with their strategy.
ON BALANCE VOLUME (OBV):
The tool was developed by Joe Granville and is used to detect whether the volume is bearish or bullish-oriented. OBV marks the particular volume of the day as bearish or bullish depending on whether the day has been bearish or bullish. It then adds/detracts that volume to the running open total. The total then indicates the overall sentiment of the market.
MONEY FLOW INDEX:
The money flow index shows the money flow and is calculated in a few steps. I recommend going to this link to read the steps yourself.
The MFI is created by trader Bill Williams and is based on volume as well. The MFI is calculated by:
MFI = (high – low) / volume
The formula is very simple, yet provides various interpretations in combination with volume. There are 4 different combinations based on MFI and volume. The color codes have the following meaning:
COLORMFI / eunic-brussels.euMS DESCRIPTION
1) Green MFI UP / VOLUME UP TREND CONT GREEN
2) Brown MFI DOWN / VOLUME DOWN TREND END FADE
3) Blue MFI UP / VOLUME DOWN SPIKES FAKE
4) Pink MFI DOWN / VOLUME UP START SQUAT
Green indicates a strong trend continuation mode. Brown indicates a potential area of the trend ending. Blue occurs in environments when a market spikes into 1 direction, often causing confusion about the trend direction. Pink indicates the beginning of a trend continuation or reversal. These are the volume tools you can use in the Forex market.
Remember, the volume is important for the analysis of stocks and futures. Volume, open interest, and price action are the key components in trading decisions.
The best volume indicator to apply to a volume trading strategy in the Forex market is the Chaikin Money Flow indicator (CMF).
The Chaikin Money Flow indicator was developed by trading guru Marc Chaikin, who was coached by the most successful institutional investors in the world.
The reason the Chaikin Money Flow is the best volume indicator for a volume trading strategy is that it measures institutional accumulation-distribution.
Swing Trading ReportGet Our Free Swing Trading Strategy
Get Our Free Swing Trading Report Today!
Typically, on a rally, the Chaikin volume indicator should be above the zero line. Conversely, on sell-offs, the Chaikin volume indicator should be below the zero line.
The difference between the Chaikin Money Flow and the standard volume is the math underlying each indicator. Secondly, the trading volume analysis is quite different as well as how the trading signals are interpreted.
On the one hand, volume simply measures how much a given currency pair has traded over any given period of time. Volume is used to measure the strength and weakness of a trend. As a general rule, a strong trend should be accompanied by rising volume. At the same time, a sharp rise in volume can also signal the potential end of a trend.
Now…
The Chaikin Money Flow uses exponential moving averages in its calculations.
The math behind this volume trading strategy indicator is a bit complex, but it’s not required to really know all the ins and outs to use the CMF indicator successfully.
CMF = day Average of the Daily Money Flow / day Average of the Volume
Where:
Basically, the indicator uses two exponentially weighted moving averages (EMAs) of the accumulation/distribution line. The accumulation/distribution line is similar to the one used by the MACD indicator.
Next…
Let’s see how to use the CMF indicator with the best settings.
See below:
The default setting for the best volume indicator is 21 periods.
While you can tweak the indicator settings and you can try different configurations, you need to keep in mind 3 things:
See the trading volume chart below:
This makes CMF the best volume indicator for day trading.
Moving on…
Let’s examine the advantage of using a volume indicator.
See below:
The main advantage of the Chaikin Money Flow indicator is that the indicator can assess the buying pressure vs the selling pressure of your favorite currency pair (stock, ETF, cryptocurrency, futures market, etc.). Since we don’t have an aggregated volume in the foreign exchange market, this indicator is coming to the rescue.
With the CMF volume indicator, we can measure the amount of money coming into the market and its impact on the actual price.
When the candle closes near the top of its price range on increase CMF volume, it’s a signal that smart money is accumulating. On the other hand, if the candle closes near the bottom of its price range on decreased CMF volume, it’s a signal that distribution is taking place.
Moving on…
Let’s see how 5 different ways you can use volume in trading:
The CMF volume indicator can be used to confirm the strength of the trend, the accuracy of a breakout, trend reversals, false breakouts and so much more. Gaining an understanding of the different applications of the volume indicator in trading can help you improve your results.
Without further ado, here are a couple of ways to use price-volume analysis.
See below:
Here is how to use the CMF trading volume analysis indicator to determine the strength or weakness of a trend:
The Chaikin Money Flow indicator can also be used to confirm the strength of a breakout. If the CMF volume reading is above zero when we break a resistance that is viewed as buying pressure. In this case, the breakout has higher chances of success.
Conversely, if the CMF volume reading is below zero when we break a support level that is viewed as selling pressure. In this case, the breakout has higher chances of success.
We can also use the CMF volume readings to spot false breakout signals. If we break above resistance but we have negative readings on the CMF indicator that is a potential false breakout.
Conversely, if we break below a support level but we have positive readings on the CMF indicator that is a potential false signal.
The crossing of the zero level can be used to generate buy and sell signals.
Put it simply, when the CMF volume forex indicator crosses above zero, it’s seen as a buy signal. Conversely, when the CMF volume indicator crosses below zero, it’s seen as a sell signal.
Note* It should be avoided to use this type of trading signals in ranging markets.
Usually, in both rising and falling markets during the last stage of the trend, we can see spikes in volume and volatility. These are often sharp price moves that are accompanied by sharp increase/decrease in trading volume.
When you see this type of action, it’s a warning sign of a potential trend reversal.
Next…
Let’s go over an effective volume trading strategy with buy and sell signals, stop loss and take profit levels to trade in both bull and bear markets.
See below:
This volume trading strategy uses two very powerful trading techniques that you won’t see written anywhere else. These are trade secrets that you wish you had been taught. The percentage of volume trading strategy that is advertised is achievable with a great deal of discipline. Understanding volume trading will help you to get the most value out of this volume trading strategy.
The Chaikin indicator will dramatically improve your timing and teach you how to trade defensively. Having a good defense when trading is absolutely critical to keep the profits that you’ve earned.
Before we go any further, we always recommend taking a piece of paper and a pen and take notes of the rules of this entry method. You can also read a million USD forex strategy.
In this article, we’re going to look at the buy-side.
This volume trading strategy requires you to pay careful attention to the forces of supply in demand.
Volume traders will look for instances of increased buying or selling orders. They also pay attention to current price trends and potential price movements.
Generally, increased trading volume will lean heavily towards buy orders. These positive volume trends will prompt traders to open a new position.
On the other hand, if the cash flow and trading volumes decrease– we see a “bearish divergence”, meaning that it will likely be an appropriate time to sell.
You also need to pay attention to the relative volume—regardless of the raw number of transactions occurring in a trading period. Ask yourself how is the prospective asset performing relative to what was expected?
By learning how to use the Chaikin money flow and other relevant indicators, you will easily be able to identify whether the buyer or the seller is currently “in control.”
With practice, volume trading strategies can yield wins for your portfolio 77% of the time!
When the Volume goes from negative to positive in a strong fashion way it has the potential to signal strong institutional buying power. That’s our base heavy lifting signal!
Basically, we let the market reveal its intentions to us.
When big money steps into the market, they leave a mark as their orders are so big that it’s impossible to hide. When the volume indicator Forex goes straight from below zero to above the zero line and beyond, it shows accumulation by smart money.
We’re firm believers that you get the maximum bang for your buck when you trade side by side with smart money. Chances are that institutions have more money and more resources at their disposal. Odds can be stacked against you, so if you want to change that, just follow the smart money.
There is one more condition that needs to be satisfied to confirm a trade entry.
See below:
Once we spot the elephant in the room, aka the institutional players, we start to look for the first sign of market weakness. Here is how to identify the right swing to boost your profit.
We’re going to let the Chaikin Money Flow indicator slowly drop below the zero line. The keyword here is “slowly”. We don’t want to see the volume dropping fast because this will invalidate the accumulation noted previously.
Second, as the volume decreases and drops below the zero level, we want to make sure the price remains above the previous swing low. This will confirm the smart money accumulation.
The Trading Strategy Guides volume trading strategy satisfies all the required trading conditions, which means that we can move forward and outline what is the trigger condition for our entry strategy.
See below:
Now that we have observed real institutional money coming into the market, we wait for them to step back in and drive the market back up.
When the Chaikin indicator breaks back above zero, it signals an imminent rally as the smart money is trying to markup the price again.
We would need to wait for the candle close to confirm the Chaikin break above the zero line. Once everything aligns, we’re free to open our long position. Here is an example of a master candle setup.
*Note: The trigger candle needs to have the closing price in the upper 25%.
This brings us to the next important step. We need to establish the Chaikin trading strategy which is finding where to place our protective stop loss.
See below:
Using a stop loss is crucial if you want to have an idea of how much you’re about to lose on your trade. Never underestimate the power of placing a stop loss as it can be lifesaving.
Simply hide your protective stop loss under the previous pullback’s low. Never use a mental stop loss when volume trading, and always commit an SL right the moment you open your trades.
Trading with a tight stop loss can give you the opportunity to not just have a better risk-to-reward ratio, but also to trade a bigger lot size.
Last but not least, we also need to learn how to maximize the profits with the Chaikin trading strategy.
See below:
Once the Chaikin volume drops back below , it indicates that the sellers are stepping in and we want to take profits. We don’t want to risk giving back some of the profits gained so we liquidate our position at the first sign of the smart money stepping in on the other side of the market.
We always can get back into the market later if the smart money buyers show up again.
**Note: The above was an example of a BUY trade using the best volume indicator. Use the same rules for a SELL trade – but in reverse. In the figure below, you can see an actual SELL trade example.
The Volume Trading Strategy will continue to work in the future because it’s based on how the markets move up and down. Any market moves from an accumulation (distribution) or base to a breakout and so forth. This is how the markets have been moving for over years.
Smart money always seeks to mask its trading activities, but its footprints are still visible. We can read those marks by using volume indicator trading. Here is another strategy on how to apply technical analysis step by step.
Make sure you follow our favorite volume trading strategy for trading step-by-step guide to properly read the Forex trading volume. The Chaikin indicator will add additional value to your trading because you now have a window into the volume activity the same way you have when you trade stocks.
Did anything about today’s post intrigue you? If so, please comment below.
Thank you for reading!
Please Share this volume trading strategy PDF Below and keep it for your own personal use! Thanks Traders!
Free eBook Download!Get A Simple 5-Step Momentum Trading Strategy
2 mins read
The volumeindicator is a vital tool investors and traders use to understand the liquidity and market activity in trading financial assets. It measures the number of shares or contracts traded during a specified period, providing insights into the buying and selling pressure in the market. The concept of the volume indicator dates back to the early s and is credited to Richard Wyckoff, a pioneer in technical analysis.
The formula for calculating the volume indicator is straightforward:
This period could be a single or multiple trading sessions, depending on the timeframe being analyzed.
Analyzing the volume indicator involves understanding the patterns created by the trading volume and their relationship with price action. High trading volumes often indicate increased market interest and liquidity, whereas low volumes suggest a lack of interest or limited market activity.
The volume indicator can be employed in various ways to enhance trading strategies:
Get Everything You Need to Trade Like a Pro, All in One Place!
TrendSpider is the only enterprise-class trading platform accessible to retail investors. Its designed to help you:
All this and more in TrendSpiders all-in-one platform.
Learn More
The volume indicator offers several benefits to investors and traders:
Despite its advantages, the volume indicator has some limitations:
In conclusion, the volume indicator is valuable for understanding market activity and liquidity in trading financial assets. By analyzing the patterns created by trading volumes, investors and traders can gain insights into market sentiment, trend strength, and potential trend reversals. However, it is essential to recognize the limitations of the volume indicator and employ it in conjunction with other technical and fundamental analysis tools to improve the overall effectiveness of trading strategies. By doing so, investors and traders can make more informed decisions and enhance their chances of success in the financial markets.
Looking for a Trading Strategy?
Check out TrendSpiders Strategy Tester to experiment with hundreds of possible trading strategies without taking any risk.
Try TrendSpider and see why we are the fastest growing trading platform on the market first hand!
Learn More
The indicator Volume Forex allows to evaluate a processing techniques of tick data the attention level of «active money» to this asset profitable to use an imbalance the demand/sentence.
Trading with volume indicators in foreign exchange market − rather conditional mechanism. Forex market does not have a common information center, therefore the actual volume of transactions on a separate asset cannot be calculated. The fact that, we consider tick volume Forex today represents quantity of price tics for unit time where, actually, one tick − the fact of the change in price of an asset for one basic point. Tick volume works as the normal statistical counter and in transactions is not connected with a real amount of money in any way.
In the trade terminal Forex is available information only on the number of transactions, and − only a weighted mean value. That is trade orders of 1 trade lot volume indicators Forex will consider as transactions (active dynamics!), and one trade warrant of lots − as the single transaction. The number of transactions can be small, and the amount of the invested money – huge, that will exert strong impact on an asset, but indicators of it will not be noticed. It is necessary only to hope that their weighted average indicators correctly reflect the general market dynamics.
The Volume indicator in Forex has an appearance of the histogram and is located in an additional window under a price chart. The colour scheme can be configured individually, but usually select traditional: green color means that the volume of the current bar exceeds volume previous, red color − the volume of the current bar is less, than the volume of previous.
Volume value represents the number of the transactions (opened and closed) for the single period (depending on the selected timeframe). Height of a column of the histogram of the indicator is proportional to the tick volume of the market. We will remind: if you in the terminal Forex select analogues of exchange trade assets in the form of CFD (indexes, raw futures, metals) − the Volume indicator Forex will show all the same tick volumes, but not real exchange!
For exchange − traded assets − of course, when accessing relevant information − the Volume indicator will analyze volume (but not quantity!) really traded contracts.
The Volume indicator in trading does not give clear signals: to make a trading decision, the comparative dynamics of the histogram of the indicator and the price chart is used.
There are several standard options.
How to use volume indicator if it shows a serious volume with minimal price dynamics? There are two possible situations:
Strong trading signal of the reversal is traditionally considered as the situation of divergence of the indicator histogram and price chart.
The Forex trading volume indicator of has to evaluate correctly relative volume in dynamics: average, high or low in comparison with the previous bars. In order that the price moved on one tick, it is necessary to sell or purchase a certain number of contracts, as means adding «new money» in the market. Therefore, by the sizes of tick volume it is quite possible to judge dynamics of actual volumes.
Volume trading indicators can be used in any strategy, but only for confirmation of signals. To make trading decisions only on the basis of their information − it is impossible.
The Volume indicator usually advances dynamics of the price. When the price at first actively moves on increase in volume, but at some point volume begins to decrease, still some time ( bars) the price will move by inertia in the former direction. In that case, it is possible to manage to record result of transactions.
Is the main lack of Forex volume indicators distortion of their indicators after sharp movements of the price. In such situations, it is necessary to wait until speculative volumes stop influencing the price, and the market itself will define the direction.
Transactions of large customers and the manipulation of market makers the volume indicator of forex processing is incorrect, for this reason its indications during the periods of the unstable market (opening/closing of trading sessions, news and other force majeure) − cannot be trusted.
аналитика форекс gbp кaртa мирa форекс вспомогательные индикаторы форекс как платят налоги трейдеры валютного рынка форекс лучшие индикаторы для входа индикаторы измерения температуры щитовые дмитрий котенко форекс клипaрт для форекс имхо на форексе дц форекс брокер отзывы безрисковая комбинация форекс индикаторы рынка ферросплавов