Trading involves using various strategy to analyze and trade the market. Like an architect whose job is to design the best plan with an accurate measurement, you need to understand the market and trade using that knowledge. It is where the Best Volume Indicator For Forex could make all the difference.
What tools are you using? What strategy are you using? Are you profitable in your trading adventure? If your answer is no to the last question, it is time to reconsider your trading. It is time to dump your old tactics and find the best strategy that works. Volume trading has been in existence for as long as one can imagine. Traders take advantage of volume to analyze the health of a current trend from its activity. Now you would understand why traders want the best volume indicator for forex trading.
Besides this, its popularity is common due to its widespread usage by technical traders. In some platforms, you might not see certain indicators, but the volume indicator is one you will find across various platforms. With this, you can have an idea of how the volume indicator can be in trading. In this article, you will learn essential strategy in trading with the best forex volume indicator.
At the end of this article, your trading ability will never remain the same. Let us get the ball rolling.
What is volume in Trading?
Before jumping into the strategies, we don’t want to assume everyone knows what volume means in trading. In trading, the volume represents all trades recording for a currency pair within a specified period. If you trade a 5-minute chart, whatever happens within that timeframe represents the volume.
Today, a lot of trading platforms makes it easier to print the volume bars, which include the red and green bars. The red bars indicate that the currency or stock closes at a lower price within a given period, whereas the green bars indicate the currency pair closes upward for a specified period. Using the best volume indicator for forex can be the distinguishing factor that changes your trading.
Strategies for trading volume in Forex
The financial market, in general, has numerous tools that traders can utilize to trade the market. However, the tools available for traders in the forex market produce better results to help traders decide on the market.
In an emergency, a doctor requires the best tool to treat his or her patient; besides this, each equipment must undergo various screening and testing to ensure it doesn’t cause more havoc that has been created.
The forex market operates similarly; you need to fine-up the best strategy to smile to the bank. For volume traders, using the best volume indicator is only a step to achieving that feat. What strategy will you implement with the best indicator to achieve that result? Here are a few of them to talk about:
1. False breakouts
2. Confirming trend
3. Identifying reversals
The major fear for any trader is the fear of being cut at the wrong side when a false breakout appears. A breakout is a situation where price breaks a major resistance or support level but return to its previous level. To avoid false breakouts, you should wait for the current candle to close far above the support or resistance level before opening a trade.
While this option might be awkward for most traders, another way to confirm a breakout is through volume. In the course of a breakout, you will see a spike in the volume, especially if you are using one of the best volume indicators. When you see the volume bar increasing, it is a sign that large participants of people are in the market with the possibility of price changing direction.
From the chart above, the three horizontal lines represent areas of support and resistance using swing highs and swing lows. Furthermore, the green and red boxes indicated with numbers indicate periods when price tries breaking through areas of support and resistance. Nevertheless, some of these breakouts didn’t push through; you can see that breakouts 1, 2, 3, 4, and 6 didn’t push through as it returned.
However, breakout 5 and 7 were great breakout entries, which took place when the volume was radically higher than the candles around it. Trading breakouts especially when volume goes higher can increase your opportunities of finding better trades.
Volume confirmation trend
Another strategy to employ when using volume is to use it to confirm the trend of the market. It works perfectly if you understand the market structure and how trend forms. In a strong trend, it is natural to see volume increasing as price moves toward the direction of the trend.
However, when volume decreases, prices move in a counter direction. Traders take advantage of these movements using volume as confirmation.
The greater the disparity in volume, especially when a market is trending with countertrend moves, the stronger the trend becomes. In the following chart above, you can see that whenever price moves upward, the volume increases, and when price moves downward, we see volume decreasing.
Whenever you find such a scenario on your chart, you can place trades towards the direction of the trend pending when you see an increased volume during a breakout.
Finally, you can use the best volume indicator for forex trading to identify reversals. In our previous chart, we had a strong trend; however, the trend will not last forever. The trend will change at a certain point – reverse. Timing when a reversal will take place is a very difficult thing to do if you are a new trader.
Professional traders use volume as a pointer to know when a reversal is likely to take place. A simple trick to use is to look out for opportunities when the volume is decreasing with the trend of losing steam. However, it is important to be alert since a false breakout can be dangerous, especially if you run a small forex account.
Closing Remarks On Best Volume Indicator For Forex
You shouldn’t depend on volume only to generate a buy and sell signal; nevertheless, it can provide you with further insight into the market. You can use other indicators to analyze the market while you rely on the best volume indicator for forex to use as a confirmation tool.
We have a lot of tools and indicators on this website to help build your trading strategy. If you are a volume trader, finding the best volume indicator is a necessity and you can do that via this link.