To date, Forex traders and pundits still ask if volume helps traders make smart Forex choices. The truth is it’s even pretty difficult determining the Forex trading volume because Forex is a decentralised market. But, in this article, you will learn about clues that volume gives in Forex trading. Let's roll!
FOREX TRADING VOLUME CLUES
You can get a sense of the Forex volume by employing the FXCM’s Real Volume Indicator. This is a real-time display of volume and number of clients around the world. The volume displayed on the indicator can give us certain clues.
1. VOLUME CAN CONFIRM BREAKOUTS:
One of the challenges Forex traders have had to deal with is predicting a false breakout, an increase of prices to a certain level even though the increment isn’t sustainable. When false breakout occurs, it’s said that price breaks support and resistance levels and later falls back to its original point. Whenever there’s breakout, there’s often rise in trading volume, suggesting that most traders agree that the breakout is sustainable.
2. VOLUME HELPS TRADERS FOLLOW TRENDS:
Furthermore, trends help Forex traders make informed decisions. Trend in Forex trading is about observing and defining the pattern the market follows. To follow a trend or go with the flow, it means a trader has to be patient to understand and analyze the volume of trade, then decide on when to place trades in order to rake in loads of pips. Much as strong trend means increase in Forex trading volume, trends are sometimes unpredictable.
3. VOLUME IDENTIFIES REVERSALS:
One of the factors that make Forex trading tricky is trend reversal. No, trends don’t last forever! And whenever the trend stalls while the volume decreases, it could signal that a reversal is on the horizon. At this point, placing trades may not be a good business choice.
4. VOLUME SIGNALS TRADERS’ EXHAUSTION:
Also, when you see a spike in volume while price drops, this suggests that investors are getting exhausted and are dumping the stock. Make no mistakes about it; it’s time to sell your shares.
From the foregoing, as a newbie, Forex trading volume can actually help you predict when to place trades. But this is mere prediction as you can only view the market from the perspective of one broker (your broker, actually!) and not seeing the entire market. Even though many experts don’t admit the potency of using market volume to determine when to place trades, a lot others have attributed their success to trade volumes among other factors. Regardless of what they think, Forex volume plays important roles in the market.
The content of this article reflects the author’s opinion and does not necessarily reflect the official position of LiteForex. The material published on this page is provided for informational purposes only and should not be considered as the provision of investment advice for the purposes of Directive 2004/39/EC.