Why should I use Volumes Indicator?

Volume tells you how much of an asset was traded over a given period. The volume data is tracked by market exchanges and is one of the oldest indicators to be plotted on a chart. It is also one of the few indicators that isn’t related to price. Traders use volume to determine how much demand there is for an asset at various price points, making volume a critical data point for any trader. In general an increase in volume indicates a higher probability that price will change dramatically. High volume often accompanies news events, such as the release of important economic data or the release of corporate earnings. Strong trends are nearly always accompanied by increased volume, and there are several indicators and strategies that use volume in conjunction with other indicators to find good entry and exit points. Volume data is important in equity and commodity markets, as well as in bond markets, but forex traders are in a pinch since there is no precise reporting of volume in the forex markets. The global banks that comprise the interbank market jealously guard volume data as proprietary, and that means no one entity or institution ever gets a view of the full picture when it comes to forex volume.

How Forex Traders can use Volume

With no precise volume figures available in the forex markets a proxy needs to be used to approximate volume. To do this the tick volume within each bar has been used as a way to assign forex volume. So, any volume based indicators for forex markets are really tick volume indicators. Before the personal computer there was no way individual traders could compute this themselves, but with the power of the personal computer and the free trading software available to traders it’s now easy to get your hands on volume data for the forex markets, or more accurately tick volume data. One of the most popular of these tick volume indicators is the Volumes Indicator included as part of the standard indicators within Metatrader 4 (MT4). The Volumes Indicator is important because it can inform traders roughly how much strength might be left in any trend. This makes volume trading similar to momentum trading, and the two can be combined to confirm each other. When looking at the Volumes Indicator, as long as volumes remain high it is fairly safe to assume the current trend is healthy. Conversely, if we see volumes dropping there is a very good chance the current trend is losing strength, and will at least see a pause in the near future. This tendency makes the Volumes Indicator a good method to do a confirmation on price movements. If a trend looks to be forming, rising volumes should confirm this. Once the trend is in place, continued high volumes will confirm the strength of the trade. And if volumes begin to dip traders know to become cautious about the current trend, with suspicions of a possible reversal likely.