Best Volume Indicator Forex and Why You Need It
Welcome again on Best MT4 Indicators! Ability to interpret the interest of investors in the forex market based on the volume of trade performed over a period is a skill every trader should possess. Unfortunately, not everyone is able to analyze the market to determine when to trade.
Nevertheless, with the best volume indicator forex, you can easily determine what goes on in the forex ecosystem and how you can leverage the system to place your trade at the right time. A good volume indicator has mostly a place in TOP 10 list off best mt4 indicators.
What is Volume?
The volume is a representation of all the trades that have been recorded for a security or currency lots in a period of time and they can be detected based on a chosen timeframe; one minute, an hour or even a day. The volume forms indicators as they help Technical analysts interpret information about the pressure on price change.
Volume Indicator Forex is used to define the interest of investors in the market, which reveals the investors’ trading activity over a period of time. They are indicators that help spot every change in volume traded in the market, which often leads to a trend reversal. Volume also comes from the strenght off a forex pair, also called: Currency Strenght. You can read more about that on our Currency strength meter page.
When volume goes high, it is believed that the trend will stay longer for a while. This is because there is high pressure for changing the price in the direction of the present trend. At this time, traders become enthusiastic about executing their trades at the prevailing price.
When volume goes low, it is believed that the current trend will soon be discontinued or reversed. This happens because there is low pressure for altering the price in the direction of the trend. At this time, traders are not keen about executing their trades at the prevailing price.
Uses of the Best Volume Indicator
Volume indicator Forex is very sensitive to changes in the trend even before they become obvious. They can also be used to approve or discard signals produced by other indicators.
It is believed that volume foregoes price. This means that a higher volume (at emerging of a new trend) or a lower volume (at the finishing of a trend) is usually as a result of major change in price.
The Best Volume Indicator Forex helps to find divergences between price and volume. If the price is still attaining higher highs, yet the volume is dropping, it is a bearish divergence. This leads to reverse in the upward trend. When if the price keeps attaining lower lows, but the volume is reducing, it is a bullish divergence and should be considered as a buy signal. There are also many people who use Forex Telegram Signals.
• The two major data in the market are price and volume. Volume Indicators considers both.
• It enables you to make a deal at the commencement of an emerging trend.
• It helps in reducing losses
• Volume indicators can generate false signals sometimes.
Best Volume Indicator In Forex
There are many Volume Indicators that can help traders in analyzing volume data. Here’s the list of some of the frequently used best volume indicator forex:
1. On Balance Volume (OBV) indicator
2. Volume Price Trend (VPT) indicator
3. Volume Relative Strength Index (RSI)
4. Chaikin money flow indicator
5. Money flow index
On Balance Volume (OBV) Indicator
If you are thinking of using the best volume indicator forex, then think about the OBV. On Balance Volume (OBV) Indicator is effective, yet an easy indicator used for measuring pressure (buying and selling). OBV is cumulative in nature. There is always an increase in volume (OBV total plus the volume of the day) whenever the market finishes on the higher side. Also, there is a reduction in volume (OBV total minus volume of the day) whenever the market finishes on the lower side.
The value of OBV value is plotted as a line. This makes it easy to interpret. Basically, On Balance volume Indicator is used to determine the overall price movements after divergences. On Balance Volume (OBV) was generated by Joe Granville. The indicator is an ancient indicator well-known for both positive and negative volume flow.
How to calculate OBV
1. When Current Closing Price is bigger than the Previous Closing Price then:
Current OBV = Previous OBV + Current Volume
2. When Current Closing Price is smaller than the Previous Closing Price then:
Current OBV = Previous OBV – Current Volume
3. When Current Closing Price is just equal to the Previous Closing Price then:
Current OBV = Previous OBV
What to expect from OBV
Identification of Trend:
On Balance Volume (OBV) identifies the overall trends of the market. It can also check setups created by extra signals which depend on being able to identify the trend. Also, OBV can spot likely trend reversals.
When price movements are not established by the indicator, it is known as Divergence. OBV indicator considers volume oscillations (positive and negative) with price changes. The divergence amid price and OBV helps to identify possible reversals. Divergence could be bullish or bearish. It is bullish when the price drops (a lower low) but OBV goes up (a higher high). While a bearish divergence occurs when OBV goes lower but the price goes higher.
Limitations of OBV
OBV may give predictions, but a trader may likely not know the events as regards the given signal. This could result in false signals. Hence, to balance it out, the Lagging indicators can be used. By using a moving average line to the OBV in order to find out OBV line breakouts.
When OBV indicator records a concurrent breakout, traders will be able to identify a breakout in the price. The sudden increase in volume occurring during a single day can put the OBV indicator out of place.
Conclusion Best Volume Indicator
The volume indicator forex is a great indicator for categorizing stocks’ buying and selling activity at significant levels. To identify the number of changes in price during one bar, the Volume Indicators are there. They are used in collecting general market information. The best Volume indicator forex provides information such as the market trends, reversals as a result of volume spikes, and also all breakouts.
When there is an increase in Volume, it interprets an emerging interest in the market. This will mean a major trend or even a new trend start-up and when there is a reduction in Volume, it interprets a declining interest in the market. It results could either be a reversal in trend reversal or temporary consolidation of the market. BTW: We will be posting soon a special hull moving average mt4 article. Stay tuned for that!
A signal for a future reversal could be as a result of the quick and strong upsurge in Volume, while a quick price movement will be as a result of a decrease in Volume. Here, you could find several effective indicators and tools available for every trader ready to maximize profit, so check out the link.