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 Forex technical analysis uses various indicators like Moving Average Based Indicators, Volume Based Indicators, Volatility Based Indicators and Ranging Indicators / Oscillators. From the Volume Based Indicators category the first and simplest indicator is the volume.
Volume measures the value of a market move. This indicator measures the total number of buyers and sellers of a market move indicating the strength or weakness of a trend. The volume of the Forex market cannot be measured exactly in every moment so it’s used the number of changes in the price (also known as ticks).
On Forex market moves that are sustained by a higher volume are more important. If the price of a currency pair moves strongly up or down the force of that move depends of the market volume for that period. A large volume of the foreign exchange market indicates a large number of buyers and sellers like major financial institutions that activate on the market. At this point the interest for the currency price is very high and the situation attracts more traders. A small volume suggests low interest from the major traders for the currency price so the movements on the market are going to be weak. A rising market volume suggests an increasing interest from traders for the currency pair meanwhile a falling volume indicates decline in the interest for the currency. The points where the market registers high volumes represents the strong support and resistance but extreme volume values also known as peaks highlight price reversal. The strength of the up or down trends is very easy to evaluate using the volume indicator. Both up trends and down trends are considered to be strong just if the volume increases as the price moves along the trend and then decreases if the price goes against the trend. When the currency price registers an uptrend but the market volume is decreasing traders know that the trend will slow down or the price will start to fall. If the charts show a downtrend but the market volume doesn’t show an increase the price will start to go up or at least slow the downtrend. If at a certain level of price appears a spike of the volume it means that the traders show a lot of interest and that price level is very important. News and fundamental economical announcements can create spikes in volume, but just for a single day, the price returning afterwards to the previous trend. Although volume indicator suggests the strength of the up or down trends, it should be used as a confirmed evidence of a trend along with other indicators. |
