The volume shows the number of transactions made in a certain period of time with a certain financial instrument. The most common way to see the volume in the charts is to activate the volume indicator. It is then displayed as a bar chart under the candles.

Each bar belongs to a candle and represents the volume from the opening to the closure of the candle. However, there are many other ways to display volume with different indicators. Some other popular volume indicators are On Balance Volume OBV , Klinger Oscillator or the Money Flow Index.

Based on the volume, you can read the strength of a candle, and this helps you to see if, for example, a breakout is valid or not. It is very useful when you use it as a confirmation for your trades.

It is also important to understand that volume is closely related to liquidity. When the volume is high, there is also a lot of liquidity in the market. This means that if you are trading small stocks like penny stocks or small cryptocurrencies, you should always make sure that there is enough volume and therefore liquidity in the market. Otherwise, you will have problems finding a counterparty for your positions and will not be able to open or close your trades.

The Forex market is the largest and the most liquid market in the world, with 6 trillion dollars worth of transactions performed on a daily basis. If you can master volume analysis, a lot of new trading opportunities can emerge. When we have a lot of activity and volume in the market, as a consequence, it produces volatility and big moves in the market. While you can still make money even in tight range markets, most trading strategies need that extra volume and volatility to work.

If we look at any trading platform like TradingView, they have a volume attached to their chart. Another thing that most traders don't realize about forex volume is that, it is tick volume not true volume.

Open Interest is a measure of how many total positions, short or long, are currently held in a market. Are there a lot of positions currently held, or relatively few? Many people see this as a contrarian indicator because if more traders are buying those could be retail traders but the banks would be selling.

You can find open interest in forex by looking at the community outlook page on myfxbook. Tick Volume is the total number of transactions that has taken place not the dollar amount. The difference is important because if there are many trades happening but the dollar amount of those trades is small, then we will not get the follow through in price we were expecting.

Volume and open interest are momentum indicators — that is, rather than helping you directly determine the direction of a market, they are designed to help you gauge the strength or weakness of a market move. This is the reason we have developed our own Momentum Indicator to guide our trades. Therefore, they are secondary indicators of future market direction. Factors like volume are useful to confirm your market analysis, but should never form the foundational basis for that analysis.

In short, volume and open interest can be notoriously unreliable market indicators, especially in short-term trading. However, they can still be utilized to confirm an existing hypothesis that one has about the near-term or even long-term direction of a market.

One particular situation in which they can be helpful is when a market has been in a trend, up or down, for quite some time. You have doubts as to whether it will continue its current direction, or begin to fail at current price levels and reverse direction. Likewise, if volume and open interest remain relatively steady, or even increase, while the market pauses and catches its breath, odds are better that the market will resume its existing trend once it gets moving again.

Volume and open interest are nearly always mentioned together for a very good reason. Whenever using them as market indicators, they are more reliable when both indicators are in agreement with each other. The basic combinations of volume and open interest are as follows:. More reliable indications - Volume AND open interest both increasing favors higher prices or current trend continuation.

Volume Down and Open interest up could be momentum signal. There is often a dramatic increase in volume at market tops or bottoms. Therefore, volume can be a useful indicator to help detect market reversals, significant changes in direction, up or down.

Just keep an eye out for that. The Forex market is a decentralized market, which means that there is no formula for volume or method of keeping track of the number of contracts and contract sizes, such as in the stock market.

The Forex market measures volume by counting the tick movements. The logic behind this is straightforward:. a Price moves up and down in ticks. b The Forex market cannot measure how many contracts are sold, but it can measure how many ticks price moves up or down in any given time frame. c It can still be measured by measuring how many ticks price moves up and down. d Therefore, irrespective of how many transactions have been completed to make the price move, the net effect will be measured.

It is the equivalent of focusing on the next result instead of analyzing the process. The volume measurement in the Forex market is looking at how much price moves within a certain period and it does not care how many or few buying and selling transactions are in fact needed to make that price move 1 tick.

All it knows is how many ticks it moved, regardless of the fact if trades were involved or 10, The volume in the Forex market is segmented, which is the reason why we need to use our best volume indicator. Price action is always our primary focus and we should never forget that!!

Write it down on a piece of paper, if need be, with a thick yellow mark: price is the number 1 measurement! Almost everything is derived from price and calculated based on price, so using price action as the primary source for decisions is only logical. Using volume to define trading decisions makes sense if it is used as a confirmation.

Here are its primary advantages:. Read more information on how to interpret divergence. If volume picks up upon the break of that consolidation pattern wedge, triangle, flag, etc , then the volume is confirming a higher chance of a sustainable breakout. Read more on trading breakouts here. If the volume is increased when the market is correcting in a downtrend, then this typically means that more buyers are stepping into the market and a reversal could occur.

Usually, these are confirmed when:. a Volume increases compared to the day before but closing prices are higher b Price hardly moves down, even though volume has increased. Distribution is a phase when sellers are controlling the market. If the volume is increased when the market is correcting in an uptrend, then this typically means that more sellers are stepping into the market and a reversal could occur.

a Volume increases compared to the day before but closing prices are lower b Price hardly moves up, even though volume has increased.

If the indicator is rising then it indicates accumulation buying of the currency. VOLUME: The most logical place to start is the volume indicator. This tool calculates the number of ticks in which a currency moves up and down. It is often used in other calculations as well.

For instance, the AD methodology mentioned in the paragraph above includes volume as part of its basic parameters. ON BALANCE VOLUME OBV : The tool was developed by Joe Granville and is used to detect whether the volume is bearish or bullish oriented. OBV marks the particular volume of the day as bearish or bullish depending on whether the day has been bearish and bullish.

The total then indicates the overall sentiment of the market. MONEY FLOW INDEX: The money flow index shows the money flow and is calculated in a few steps. I recommend going to this link to read the steps yourself. The MFI is calculated by:. The formula is very simple, yet provides various interpretations in combination with volume. There are 4 different combinations based on MFI and volume.

Green indicates a strong trend continuation mode. Brown indicates a potential area of the trend ending. Blue occurs in environments when a market spikes into 1 direction, often causing confusion about the trend direction. Pink indicates the beginning of a trend continuation or reversal. These are the volume tools you can use in the Forex market. Remember, the volume is important for the analysis of stocks and futures. Volume, open interest, and price action are the key components in trading decisions.

The best volume indicator used to read a volume in the Forex market is the Chaikin Money Flow indicator CMF.

The Chaikin Money Flow indicator was developed by trading guru Marc Chaikin, who was coached by the most successful institutional investors in the world. The reason the Chaikin Money Flow is the best volume and classical volume indicator is that it measures institutional accumulation-distribution. Typically on a rally, the Chaikin volume indicator should be above the zero line. Conversely, on sell-offs, the Chaikin volume indicator should be below the zero line. The difference between the Chaikin Money Flow and the standard volume is the math underlying each indicator.

Secondly, the trading volume analysis is quite different as well as how the trading signals are interpreted. On the one hand, volume simply measures how much a given currency pair has traded over any given period of time. Volume is used to measure the strength and weakness of a trend.

As a general rule, a strong trend should be accompanied by rising volume. At the same time, a sharp rise in volume can also signal the potential end of a trend.

While you can tweak the indicator settings and you can try different configurations, you need to keep in mind 3 things:. The main advantage of the Chaikin Money Flow indicator is that the indicator can assess the buying pressure vs the selling pressure of your favorite currency pair stock, ETF, cryptocurrency, futures market, etc. With the CMF volume indicator, we can measure the amount of money coming into the market and its impact on the actual price.

The CMF volume indicator can be used to confirm the strength of the trend, the accuracy of a breakout, trend reversals, false breakouts and so much more. Gaining an understanding of the different applications of the volume indicator in trading can help you improve your results. The Chaikin Money Flow indicator can also be used to confirm the strength of a breakout. If the CMF volume reading is above zero when we break a resistance that is viewed as buying pressure.

In this case, the breakout has higher chances of success. Conversely, if the CMF volume reading is below zero when we break a support level that is viewed as selling pressure. We can also use the CMF volume readings to spot false breakout signals. If we break above resistance but we have negative readings on the CMF indicator that is a potential false breakout.

Conversely, if we break below a support level but we have positive readings on the CMF indicator that is a potential false signal. Usually, in both rising and falling markets during the last stage of the trend, we can see spikes in volume and volatility.

These are trade secrets that you wish you had been taught. The Chaikin indicator will dramatically improve your timing and teach you how to trade defensively. Before we go any further, we always recommend taking a piece of paper and a pen and take notes of the rules of this entry method.

You can also read a million USD forex strategy. Volume trading requires you to pay careful attention to the forces of supply in demand. Volume traders will look for instances of increased buying or selling orders.

They also pay attention to current price trends and potential price movements. Generally, increased trading volume will lean heavily towards buy orders.

by TradingStrategyGuides Last updated Feb 15, All Strategies , Forex Strategies , Indicator Strategies , Indicators 24 comments. Looking for the best volume trading strategy? In this article we teach everything you need to know about volume plus teach a great strategy as well. If you want to skip the training about volume and go straight to the strategy click the table of contents. With more than 30 years of trading experience combined, our team at Trading Strategy Guides has put together this step-by-step trading guide.

The Forex market is the largest and the most liquid market in the world, with 6 trillion dollars worth of transactions performed on a daily basis. If you can master volume analysis, a lot of new trading opportunities can emerge. When we have a lot of activity and volume in the market, as a consequence, it produces volatility and big moves in the market. While you can still make money even in tight range markets, most trading strategies need that extra volume and volatility to work.

If we look at any trading platform like TradingView, they have a volume attached to their chart. Another thing that most traders don't realize about forex volume is that, it is tick volume not true volume. Open Interest is a measure of how many total positions, short or long, are currently held in a market.

Are there a lot of positions currently held, or relatively few? Many people see this as a contrarian indicator because if more traders are buying those could be retail traders but the banks would be selling. You can find open interest in forex by looking at the community outlook page on myfxbook. Tick Volume is the total number of transactions that has taken place not the dollar amount.

The difference is important because if there are many trades happening but the dollar amount of those trades is small, then we will not get the follow through in price we were expecting.

Volume and open interest are momentum indicators — that is, rather than helping you directly determine the direction of a market, they are designed to help you gauge the strength or weakness of a market move. This is the reason we have developed our own Momentum Indicator to guide our trades. Therefore, they are secondary indicators of future market direction. Factors like volume are useful to confirm your market analysis, but should never form the foundational basis for that analysis.

In short, volume and open interest can be notoriously unreliable market indicators, especially in short-term trading. However, they can still be utilized to confirm an existing hypothesis that one has about the near-term or even long-term direction of a market. One particular situation in which they can be helpful is when a market has been in a trend, up or down, for quite some time.

You have doubts as to whether it will continue its current direction, or begin to fail at current price levels and reverse direction. Likewise, if volume and open interest remain relatively steady, or even increase, while the market pauses and catches its breath, odds are better that the market will resume its existing trend once it gets moving again. Volume and open interest are nearly always mentioned together for a very good reason. Whenever using them as market indicators, they are more reliable when both indicators are in agreement with each other.

The basic combinations of volume and open interest are as follows:. More reliable indications - Volume AND open interest both increasing favors higher prices or current trend continuation. Volume Down and Open interest up could be momentum signal. There is often a dramatic increase in volume at market tops or bottoms.

Therefore, volume can be a useful indicator to help detect market reversals, significant changes in direction, up or down.

Just keep an eye out for that. The Forex market is a decentralized market, which means that there is no formula for volume or method of keeping track of the number of contracts and contract sizes, such as in the stock market. The Forex market measures volume by counting the tick movements. The logic behind this is straightforward:. a Price moves up and down in ticks. b The Forex market cannot measure how many contracts are sold, but it can measure how many ticks price moves up or down in any given time frame.

c It can still be measured by measuring how many ticks price moves up and down. d Therefore, irrespective of how many transactions have been completed to make the price move, the net effect will be measured.

It is the equivalent of focusing on the next result instead of analyzing the process. The volume measurement in the Forex market is looking at how much price moves within a certain period and it does not care how many or few buying and selling transactions are in fact needed to make that price move 1 tick. All it knows is how many ticks it moved, regardless of the fact if trades were involved or 10, The volume in the Forex market is segmented, which is the reason why we need to use our best volume indicator.

Price action is always our primary focus and we should never forget that!! Write it down on a piece of paper, if need be, with a thick yellow mark: price is the number 1 measurement! Almost everything is derived from price and calculated based on price, so using price action as the primary source for decisions is only logical. Using volume to define trading decisions makes sense if it is used as a confirmation.

Here are its primary advantages:. Read more information on how to interpret divergence. If volume picks up upon the break of that consolidation pattern wedge, triangle, flag, etc , then the volume is confirming a higher chance of a sustainable breakout.

Read more on trading breakouts here. If the volume is increased when the market is correcting in a downtrend, then this typically means that more buyers are stepping into the market and a reversal could occur. Usually, these are confirmed when:. a Volume increases compared to the day before but closing prices are higher b Price hardly moves down, even though volume has increased.

Distribution is a phase when sellers are controlling the market. If the volume is increased when the market is correcting in an uptrend, then this typically means that more sellers are stepping into the market and a reversal could occur. a Volume increases compared to the day before but closing prices are lower b Price hardly moves up, even though volume has increased.

If the indicator is rising then it indicates accumulation buying of the currency. VOLUME: The most logical place to start is the volume indicator. This tool calculates the number of ticks in which a currency moves up and down. It is often used in other calculations as well. For instance, the AD methodology mentioned in the paragraph above includes volume as part of its basic parameters. ON BALANCE VOLUME OBV : The tool was developed by Joe Granville and is used to detect whether the volume is bearish or bullish oriented.

OBV marks the particular volume of the day as bearish or bullish depending on whether the day has been bearish and bullish. The total then indicates the overall sentiment of the market. MONEY FLOW INDEX: The money flow index shows the money flow and is calculated in a few steps.

I recommend going to this link to read the steps yourself. The MFI is calculated by:. The formula is very simple, yet provides various interpretations in combination with volume. There are 4 different combinations based on MFI and volume. Green indicates a strong trend continuation mode. Brown indicates a potential area of the trend ending. Blue occurs in environments when a market spikes into 1 direction, often causing confusion about the trend direction. Pink indicates the beginning of a trend continuation or reversal.

These are the volume tools you can use in the Forex market. Remember, the volume is important for the analysis of stocks and futures. Volume, open interest, and price action are the key components in trading decisions. The best volume indicator used to read a volume in the Forex market is the Chaikin Money Flow indicator CMF. The Chaikin Money Flow indicator was developed by trading guru Marc Chaikin, who was coached by the most successful institutional investors in the world.

The reason the Chaikin Money Flow is the best volume and classical volume indicator is that it measures institutional accumulation-distribution. Typically on a rally, the Chaikin volume indicator should be above the zero line. Conversely, on sell-offs, the Chaikin volume indicator should be below the zero line. The difference between the Chaikin Money Flow and the standard volume is the math underlying each indicator.

Secondly, the trading volume analysis is quite different as well as how the trading signals are interpreted. On the one hand, volume simply measures how much a given currency pair has traded over any given period of time. Volume is used to measure the strength and weakness of a trend. As a general rule, a strong trend should be accompanied by rising volume. At the same time, a sharp rise in volume can also signal the potential end of a trend.

While you can tweak the indicator settings and you can try different configurations, you need to keep in mind 3 things:. The main advantage of the Chaikin Money Flow indicator is that the indicator can assess the buying pressure vs the selling pressure of your favorite currency pair stock, ETF, cryptocurrency, futures market, etc. With the CMF volume indicator, we can measure the amount of money coming into the market and its impact on the actual price.

The CMF volume indicator can be used to confirm the strength of the trend, the accuracy of a breakout, trend reversals, false breakouts and so much more. Gaining an understanding of the different applications of the volume indicator in trading can help you improve your results.

The Chaikin Money Flow indicator can also be used to confirm the strength of a breakout. If the CMF volume reading is above zero when we break a resistance that is viewed as buying pressure.

In this case, the breakout has higher chances of success. Conversely, if the CMF volume reading is below zero when we break a support level that is viewed as selling pressure.

This brings us to the next important step. If you are a beginner trader and to become a good professional forex trader. Excellent thank you says:. Your email address will not be published. The formula is very simple, yet provides various interpretations in combination with volume.

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