Most traders new to the financial market ignore the Volume indicator. However, this is a tool that helps traders interpret market trends. At the same time, it brings many advantages when analyzing and making trading decisions. So What is Volume? What does this tool mean for traders in the Forex market? Let’s find the answer with Learn forex Trading through the following article.
Learn what is Volume in Forex?
You must be wondering how the term what is Volume will be explained in the foreign exchange market. In Forex, Volume is a type of trading volume indicator, also known as Volume Oscillator. Serves as a measure of how much a certain asset has traded over a specific period of time. When looking at Volume models, a series of indicators will assist traders in identifying the market and the system. Volume can even help investors predict fluctuations 2 to 3 trading days in advance. In addition, some indicators also help traders with long-term analysis if investors want to have an overview and make more accurate judgments about the market.
See more: What is the way to be successful in Forex trading?
The importance of the What is Volume tool in Forex?
As mentioned above, Trading Volume has an extremely important role and meaning in Forex. Accordingly, the trading volume indicator will be used by analysts to confirm trends or chart patterns. Any fluctuations will be measured primarily using the Volume tool, for example:
- Volume preset price: Investors can closely analyze techniques based on volume indicators to predict price reversals. If volume decreases while the trend is up, it can signal an impending reversal.
- Volume indicator Volume and chart patterns: Volume also plays an important role at this time to help traders confirm chart patterns. If volume does not appear on the sample charts, it means the trade is not reliable.
What can Forex Volume be used for?
So what is the function of the What is Volume indicator in the financial market? For Forex, just adding one or two Volume indicators can bring you a lot of benefits. At least, it will help traders confirm the validity of the campaign before trading. Besides, Volume also gives early warnings if a transaction is not progressing well. Here are some common cases where the Volume tool can be used in Forex:
Trading Volume is used to confirm price trends
Normally, when volume increases strongly following a price trend, it means the new price trend will be confirmed. If volume increases but price decreases, when executing a Sell order, the volume will confirm the downtrend. On the contrary, if you choose Buy, this will be the time to exit the order.
In addition, when the price increases but Volume decreases, this is a warning of a possible reversal. This may be confusing to you, but the reality is that a price decrease or increase in small volumes is not a strong signal. Only when the price falls or rises on high volume is the signal strong and shows that something has changed.
Volume in Forex helps predict trend reversals
Or traders can use Volume in Forex to predict trend reversals. So forecast trend reversal using what is Volume? For example, when an up or down trend is prolonged but the price begins to consolidate relatively small price movements on high volume, there may be a reversal in price trend. This, in turn, shows that investors are accumulating or distributing positions.
Furthermore, Volume indicators can also help traders confirm price reversal market structures. Such as double peaks, head and shoulders or other structures. In particular, the divergence of the volume indicator with the price is a signal indicating an extremely strong reversal.
What is Volume – Use Volume to confirm false breakouts
In Forex, false breakouts occur extremely frequently due to liquidity. Through that, investors have actively learned and followed this special sign. In some situations, false breakouts can create chart patterns like Hikkake… giving the trade another source of high profits when discovered.
At the same time, knowing clearly what is Volume and having a deeper understanding of Volume indicators not only helps traders avoid trading with some false breakouts, leading to failure. It also helps traders confirm whether the opposite direction can establish a profitable trade or not. In other words, the Volume indicator can help investors identify another trading opportunity when a price trend breakout fails.
Use the Volume tool in Forex to Pullback
Finally, you can use Forex Volume for Pullback. Because the price of any stock moves in waves. Including corrective waves (Pullback) and impulse waves. When the market increases or decreases according to the trend, the impulse wave will be larger than the correction wave. However, it can be difficult to tell at the beginning of a move, if it is just a correction or a reversal in price.
This is also where the Volume indicator helps you evaluate what is happening. At the same time, it helps provide ways to manage traders’ positions. Then, a move in the trend with volume will be higher than a move in the opposite direction. The volume indicator even helps traders recognize when the Pullback will be completed and likely to continue.
See more: Instructions for opening an ICMarkets account
Mistakes to avoid when using the What is Volume indicator?
Although the concept of the term Volume is defined extremely simply, not all traders know the mistakes to avoid when using what is Volume. The following are the 2 most common mistakes that traders often make when using Volume in transactions:
- First, that is to only use the Volume tool without combining it with other indicators. Like any indicator, Volume cannot guarantee 100% accurate results. Therefore, if you do not know how to properly utilize and combine indicators, it will lead to erroneous results. That is also the reason why Volume should be used in combination with other tools.
- Second, it does not find the average Volume before placing a trade according to the volume indicator. You can be sure, the total trading volume for the day is extremely high but it is not possible to guarantee that the total volume for the week will be that high. Because many investors want to keep their positions open during the day. Therefore, traders are required to look for average volume before placing a trade.
In addition, traders need to clearly understand related knowledge such as: What is spread or What is swap … To be able to make the most correct trading decisions based on Volume volume.
summary
In short, the Volume indicator is an extremely useful analytical tool for traders. If you carefully learn what is Volume and know how to make the most of the tool, it will bring good results to your trading strategy. Hopefully, the information that Learn Forex Trading has provided in the above article will help investors better understand this type of volume indicator tool. Also, don’t forget to rate 5 stars and leave a comment if the article is useful.
FAQs:
What is Volume and why is it important in the foreign exchange market?
Forex Volume is the volume of transactions performed in a certain period. The Volume indicator plays an important role because it can provide market information. At the same time, it affects payment ability and price movements.
How to measure and analyze Forex Volume?
To measure and analyze Volume, you can use the tools: Volume Profile and Volume Indicator…
What do Trading Volume and price movements have to do with each other?
Volume and price movements are closely related. Because Volume can affect the magnitude and reliability of price charts.
