Volume represents the number of stocks, futures or options contracts, which are traded during a certain period of time, most often a day. The higher the volume, the By correlating volume levels with price data, traders can evaluate the overall market sentiment. This volume data could add a useful edge to their trading strategies. However, forex trading occurs in a decentralised market. In the absence of a primary exchange through which all transactions are conducted, there is no way to determine the exact Estimated Reading Time: 6 mins 21/02/ · Trading volume in stocks is simply a measure of how many shares traded during each candlestick. For example, in this $FCX daily chart, there were 24,, shares (rounded) traded on the most recent day. This can be a key piece of information in Estimated Reading Time: 7 mins
Volume in Trading - Explanation and Interpretation
Can trading volume be used to find potential trades in Forex trading? Learn how trading volume works in stocks and find out if the same trading strategies can be used in Forex trading. By Hugh Kimura, volume meaning in forex trading. This is a common question that I get and there can be some confusion around it, so I thought that I would write a quick blog post to explain how volume in Forex trading works. If you have traded stocks before, you probably understand a little bit about how volume can be used to identify potential trades.
However, if you already understand what volume can show you about trading activity, then skip to the section on How Volume Works in Forex Trading to learn how it applies to FX. Remember, if you use to choose volume in your trading, it is only a clue as to where price might go. Do not trade off it alone and be sure to backtest your strategy!
Even though this is not about Forex trading, it will give you a lot of context for the Forex market, later in this post. Trading volume in stocks is simply a measure of how volume meaning in forex trading shares traded during each candlestick. This can be a key piece of information in stock trading. But we also need some other information.
Volume meaning in forex trading is very useful to know the total number of shares that are being publicly traded. This is called the float. When we check Yahoo Financewe find that the total float is 1. In stock trading, this is important because it helps us answer the question:. So in this example, 24 million shares is not a lot of volume, volume meaning in forex trading, in relation to the 1.
Now, if there was a day where million shares were traded, then that is almost half the number of total shares, and it would tell us that something very significant is happening with the stock. That brings us to some other trading clues that volume can give us. When you see higher volume while price is dropping, this shows that investors are dumping the stock and it can be a signal that it is time to sell your shares too.
Without a lot of volume, the price drop could simply be a momentary dip, before it moves up again. Several big drops, on high volume, could also signal a good opportunity to buy. If you think that a company is solid, but is just the victim of bad short-term news, it could be a great time to buy at a very low price.
Price was moving down throughout Then, towards the beginning of points 1 and 2 belowwe saw two big spikes in volume, during two down days. I actually bought this stock because the US government basically told everyone that they would not let Citigroup fail. However, at point 4, there was another huge spike in selling volume, but price failed to drop significantly.
That was a sign that most of the sellers were out of the stock, at that point. So that is how we can use volume to show us when a stock does not have any more buyers and might be ripe for a purchase. Next, volume can give you hints as to when a stock is being possibly accumulated. This is one example of how we can see volume increasing, while price is basing.
In the basing pattern, there are more green bars than red bars in the volume indicator. So this could be a good hint that price might start to turn around soon. The general idea is that if you see volume increasing in a trend, it is likely that you will continue to see price move in the same direction.
It makes sense because as a trend gets going, more people need to pile in, to keep the trend going. Here is an example of a trend in crude oil where volume increases in an uptrend. Although this is futures and not stocks, the same principle applies. Once volume starts to dry up, the trend reverses, soon after. After reading the previous examples, you are probably ready to throw up a volume indicator on your FX charts.
So what you are seeing on your FX charts is only the volume that your broker sees. For example, here are two EURUSD screenshots taken at the same time.
This chart uses Oanda data and shows that the current volume is 8, currency units. But when we look at an FXCM chart, we see a much different picture. This chart shows a volume of 50, currency units. If you look at the relative volume, the graphs are pretty similar, but they are not exactly the same. For example the right side of this chart shows a big spike.
However, on the Oanda chart, there is actually a decline in volume. I actually had a hard time finding a good example of an exhaustion volume pattern on the EURUSD daily chart. As you can see, price moved down on a lot of volume, but stopped volume meaning in forex trading of a previous support point. After this spike in volume, price started to move up. This is an example of a pretty long downtrend, followed by a basing pattern and an increase in volume.
The volume increase could have been a clue that accumulation was volume meaning in forex trading place. Price shot up, soon afterwards. Here is an example that I found of a strong trend being reinforced by volume.
As we saw with the oil example above, when volume starts to decrease, price starts to drop. From those previous FX examples, volume looks like it could be a fairly useful predictor of future price movement.
But hang on for a minute, those were a few well-chosen examples, volume meaning in forex trading. The differences in market open times and volume are reflected in the intraday volume spikes, volume meaning in forex trading. Of course, this makes it harder to read than intraday stock volume. So volume might be able to give us some hints about where price is likely to go next.
However, since we are only seeing volume from one broker, it is tough to trust the numbers to give us an accurate picture of how much currency is being traded across the entire market. If you want to test a trading strategy that includes volume as a trading signal, be sure to use data from the broker that you will be trading with. This is very important.
There are some periods when volume can signal a volume meaning in forex trading move, but for the most part, volume is too flat to make any real trading decisions. Test it and find out for yourself. Hi, I'm Hugh. I'm an independent trader, educator and international speaker. I help traders develop their trading psychology and trading strategies. Learn more about me here. Get the FREE Guide to Picking the Best Trading Strategy For YOU. Skip to primary navigation Skip to main content Skip to footer What is Volume in Forex Trading?
SEE ALSO: The Ultimate List of Bitcoin Volume meaning in forex trading Resources. SEE Volume meaning in forex trading The Best Trading Psychology Books of All-Time. Related Articles. How Long Should You Hold a Forex Trade? Forex Lot Sizes Explained Complete Beginner's Guide. MT5 Pending Order Types Explained. Share This Article. First posted: February 21, Last updated: May 16, Get Instant Access.
Forex Volume Explanation - So Darn Easy Forex, time: 11:50
What is Volume in Forex Trading? » Trading Heroes
28/12/ · VOLUME MEASUREMENT 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:Estimated Reading Time: 7 mins 14/09/ · Volume trading in forex means something slightly different to securities volume. In FX trading, it’s the number of lots traded in a currency pair within a specified time period – put simply, it’s the amount of currency that changes hands from sellers to buyers. How to calculate volume in forex trading. Calculating volume in forex is more difficult because it’s a decentralised over-the-counter market Volume represents the number of stocks, futures or options contracts, which are traded during a certain period of time, most often a day. The higher the volume, the