Forex Volume Indicator

Continually monitoring and understanding the number of trading activities that take place in the forex market is a way for traders to have an idea of what is happening in the system and make decisions based on that. Every professional trader must equip himself with the necessary tools. It enables him to study the market and make timely decisions on entering or exiting a trade. The forex volume indicator comes handy in this regard.

What is Forex Volume?

Volume is the number of lots traded in a currency pair or the whole market in a particular period. This is also referred to as turnover. In forex trading, the volume is the quantity of currency that buyers and sellers exchange between themselves.

Since forex is a decentralized market. A partial volume figures are taken as a proxy for the total figures; this can come from liquidity aggregators or a specific market maker. Note that volume is not the same as volatility or speed because the price can go up or fall swiftly in a thin market also.

Volume indicators

Volume indicators are those top indicators that are based on the volume data. In the forex market, volume stands for the number of ticks (price changes) that showed in the time interval. However, for stock securities, the volume has to do with the number of trades performed (in terms of contracts or money).

Traders and investors can easily understand the happenings in the market by analyzing the volume indicators. There are several volume indicators out there. Here are some of the ones traders like to use often:

1. Accumulation/distribution
2. Chaikin money flow indicator
3. Ease of movement
4. Money flow index
5. Negative volume index
6. OBV indicator
7. Volume price trend indicator
8. Volume RSI
9. Volume-weighted average price

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Importance of Volume in Forex Trading

The importance of volume cannot be overemphasized, whether small or large. It is reasonable to analyze low volumes alone. Interpreting volume correctly means viewing it from the angle of the price action (what the price is doing). Thus, a small volume is directly proportional to price movement.

What this signifies if that, assuming there is a drop in the price of EUR/USD in a downtrend, but the volume is not affected or reduced, then it means that there is little interest in EUR/USD. Therefore, it is probable that the price may reverse. For some traders a good volume indicator can be the best non repainting indicator for day trading.

Conversely, a high volume is indicative of importance in the currency pair and availability of institutional traders. The present market situation determines the outcome of the volume on the price movement. For example, in a downtrend, a falling priced trailed by a falling volume may show a healthy downtrend and vice versa in an uptrend.

volume indicator mt4

Tick volume

Unlike the stock markets, since the forex market is decentralized, counting all the contracts and their sizes are impossible. This is why it imperative that forex traders should use indicators of tick volume.

A tick is any solo alteration or movement in a quote up or down. MetaTrader evaluates the number of ticks throughout a single period. It is, therefore, you can easily observe how actively the market trades in certain moments. We are only able to ascertain how many ticks the price moved but can’t tell whether the orders at a given period were 200 or 200,000.

How to apply tick volume

There are numerous indicators of tick volume on MetaTrader. To implement these indicators, click “insert,” and then “indicators.” Go ahead and select “Volume.” 4 types of indicators are available:

1. Volumes

The volume indicator reveals the amount of price changes (tick) in each period of a selected timeframe. When the volume bars are bigger than the preceding ones, they are painted green. But, when the volume reduces, it is painted red.

2. Accumulation/Distribution

You can calculate this indicator on the basis of price and volume. When the volume is higher, the contribution of the price on the value of the indicator becomes higher also.

3. On Balance Volume (OBV)

OBV is symbolized in the shape of a line. The present volume put into the preceding OBV if the close price of the present candlestick is above the preceding one, making the like to go up.

However, the present volume is deducted from the preceding OBV if the present candlestick is underneath the preceding one, causing the indicator to plummet. There is a presumption that OBV changes come before price changes to supply signals.

4. Money Flow Index (MFI)

MFI reveals how the speed at which money heaps up into an asset and then withdrawn from it. It is mostly seen as an edition of RSI that considers volumes.

Basic Guidelines for Using Volume

You can establish the strength or weakness of a move by using some guidelines in analyzing the volume. Traders mostly tend to prefer strong moves to those that show weakness. These guidelines are helpful in making trading decisions, though they may not apply in all circumstances.

Exhaustion Moves and Volume

Exhaustion move arises in a rising and falling market. They are sharp moves in price coupled with a sharp increase in volume, denoting the possible end of a trend. Sellers who fear that they might miss more of the movement, heap up at the tops of the market, thereby weakening the number of buyers.

At the bottom of the market, declining prices will drive out a significant number of traders, thereby leading to volatility and rise in volume. Following the spike in these conditions, there will be a reduction in volume. However, you can analyze the role of volume over the next days, weeks, or months, by making use of other volume guidelines.

Volume and Breakouts vs False Breakouts

On the first breakout from a range of other chart patterns, strength in the move can be signified by an increase in volume. An absence of interest can be demonstrated by small alteration in volume or reducing volume on a breakout. This may also be a sign of a higher possibility of a false breakout.

Trend confirmation

A rising volume is an indication that the market is rising. For prices to keep growing, there must be an increase in interest and number of buyers. A lack of interest reflects increasing price and decreasing volume. And it cautions you about a possible reversal.

A fall or rise in price on little volume is not a strong signal. When something substantially changes in the market, it is reflected through a drop or rise in price on significant volume. It is usually a stronger signal.

Volume History

It is useless to compare today’s volume with that of 35 years ago. Instead, the volume has to be viewed in comparison to recent history. The data are more significant when they are recent.

Bullish Signs

You can easily recognize bullish signs through volume. For instance, visualize a situation where there is a rise in volume on a price reduction. And then the price goes up the more, trailed by a move back lower.

In a situation whereby the price on the move back lower fails to fall beneath the preceding low. And there is a reduction in volume on the second decline. This is normally understood as a bullish sign.

Volume and Price Reversals

If the price starts to range with small price movement and heavy volume following an extended price move higher or lower, this might show that a reversal is happening. And the prices will change course.

Final Remarks on Forex Volume Indicator

It is advisable to pay attention to volume if you are searching for an active market to invest in since volume is an indicator of liquidity. However, a rising volume shows that many buyers and sellers are willing to trade at different prices.

As a novice or professional trader, you cannot thoroughly read the market without the use of forex volume indicator. Ability to understand the volume indicators and use them to your advantage will help you in making more profits and minimizing losses.

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