Best Volume Indicator Forex? One of the few information most new traders tend to neglect is volume. Well, trading volume in the market has evolved. Nevertheless, understanding the concept of volume trading comes with a lot of benefits and advantages when analyzing the market. Although, it is quite tricky for a beginner to know how to trade volume, there are volume indicators to help out. Traders focus on volume because they want to identify relevant market secrets, which you will appreciate today after going through this post.
Professional traders appreciate the importance of using the best volume indicator forex to help them confirm their chart patterns and price trend. Additionally, volume trading helps in showing the price movement of a currency pair. Furthermore, the trend observed in a volume indicator for an extended timeframe is significant to the price trend and helps a trader know when momentum is going down.
What is the volume in Forex?
The forex market comprises of sellers and buyers. Without them, no transaction can take place. Therefore, whenever the buyers and sellers are taking part in the market, there must be a unit of volume. This is what is bought or sold. Volume means different things in the financial world. However, in the forex industry, it signifies the price change (or the number of ticks) that transpire in a given period. The volume data is a representation of the activities that take place during a trading period.
Significance of Volume in Forex Trading
For a new trader, a key question will be of what importance is volume when trading? Well, volume plays a vital role, whether it is little or big. In this section, you will understand the significance of low and high volume.
For a little volume, it does make sense to analyze it alone. However, to accurately interpret the volume data, it should be in the sense of the price action (what price is doing). Therefore, a little volume is directly proportional to the movement of price. What this means is that assume the price of EUR/USD is down in a downtrend, but the volume remains unchanged or reduced, then this signifies that there is little interest in EUR/USD. As a result, there is every likelihood that the price may reverse.
On the other hand, a high volume signifies importance in the currency pair and shows that institutional traders are available. The effect of the volume on price movement will depend on the current market situation. For instance, in a downtrend, a decreasing price followed by decreasing volume may signify a healthy downtrend and vice-versa in an uptrend.
Best Volume Indicator Forex
There are varieties of volume indicators to use when analyzing the market. These indicators help both investors and traders understand the market better as to what is currently happening. In this section, you will know the best volume indicator forex used by most professional traders. If you are a beginner, you can find these mt4 indicators by going to the insert in your MT4. Then point your mouse to indicators and move to the volume where you will see the four different volume indicators.
On-Balance Volume Indicator
This indicator, widely referred to as the OBV indicator, is used by technical analysts to determine changes in volume flow. It utilizes a cumulative total of negative and positive trading volumes to forecast price direction. It is also called a leading indicator because it changes direction before the price.
The OBV indicator uses a simple approach to compute its data on the chart. If the present closing price is above the previous closing price, then the volume is added to the OBV. Furthermore, if the current closing price is the same as the price earlier, then the volume doesn’t change, whereas if the current closing price is below the previous price, then the last price is subtracted from the current closing price. OBV indicator is one of the best volume indicator for forex traders.
Whenever the OBV indicator is going up, it indicates that the price is rising. In the same vein, when the price is falling, then the OBV indicator will be going downward, as shown in the chart above.
Money Flow Index (MFI)
Another best volume indicator forex you can use when using a volume indicator is the Money Flow Index. The line oscillates between the zero and hundred markets and is used to ascertain the direction of the money flow. This is done by approximating the values of the recent transactions along with the net direction transactions. It works like the stochastic oscillator, which indicates overbought and oversold regions. The Money Flow Index uses both volume and price data to identify the regions of overbought and oversold.
The MFI indicator is easy to interpret, like the stochastic or relative strength index indicator. Whenever the signal line is above the value of 80, it is considered to be overbought, whereas a value below 20 is oversold. However, most professionals will recommend you use the 90 and 10 levels to indicate a region of overbought and oversold, respectively.
Another critical best volume indicator forex to know the volume of trade is the Accumulation/distribution indicator, which indicates the volume of the currency transacted with the price changes. The indicator use price and volume data to ascertain if a currency is presently accumulated or distributed. It is also a leading indicator since it uses volume to determine price momentum.
The indicator shows two essential things for any trader to take into consideration – how the currency price closes and the force driving the price movement. This indicator is gotten from the volume and close location of the product. As such, the indicator falls faster if the price closes near the low with a low volume. This indicates intense selling pressure. However, if the price closes nearby the high of the session with a large volume, then it shows intense buying pressure.
If you want the best volume indicator forex to assess potential price reversals and trends, then the accumulation/distribution is your best option. When the price is in a downtrend, the A/D should be a downtrend too. However, if the indicator shows an uptrend, then it indicates a selling pressure in the market.
Conclusion Best Volume Indicator Forex
Understanding volume analysis is essential for any investor or trader. MT4 has some of the best volume indicator forex you can use to perform volume analysis in the market. Study these indicators we have explained here to improve your trading and increase your profitability. And if you are searching for more ideas to make consistent income, then try it out through this link and start making more and more money from Forex.