Volumes indicator: consider the majority opinion
The Volumes indicator allows you to understand how active the trade was on the selected timeframe. Whether you are a beginner or an experienced trader, you need to understand the features of this indicator in order to trade with it profitably.
Installation of the indicator
Setting the indicator is one of the basic elements that is included in all popular Forex trading platforms, including Metatrader4. With it, you can see how many transactions were made on a currency pair, taking into account the time frame you have chosen - for example, per day.
Control of parameters
Red - Decreases the value of the key figure in the graph.
Green - Increases the value of the key figure in the graph.
! It may be more convenient for you to use the thickness of the indicator line, which will make the graph more visible. You can also schedule a line important for your trading strategy:
If for your currency pair more than 100,000 transactions a day is an indicator of active trade, and less than 50,000 transactions - a sign of calm in the market.
By default, "Volumes" is displayed on all timeframes, but you can select only those that you want using the Display tab.
Use of forex indicator on stable trend
! The key principle of technical analysis using this indicator is that the volume must confirm the price movement. With it you can check whether the potential change of quotations corresponds to the true intentions of the market.
Most of its time, Volumes obediently follows the trend:
The indicator grows when the price in the bull market increases;
Indicator drops in case of inevitable short kickbacks.
The market in which bears have an advantage supports a fall in price:
Price reduction - increase in the number of deals;
Higher price - reduced activity.
If the volume increases as the price increases, this situation is good for completing the purchase deal. If the growth of volumes is accompanied by a fall in the price - it is a sign of the advantage of bears: consider making a deal for sale.
For example, the first short-term wave of falling EUR/USD quotations gave a clear signal for sale - volumes increased significantly. Then this signal was confirmed: the decline in the market lasted for about a week. If you responded to this signal in time, your trading account has been added by more than 1000 points.
Using the Indicator for Trend Reversal
The fact is that Volumes can not only confirm well-marked trends, but also predict significant changes. In most cases Volumes is ahead of price, so you can use it to your advantage.
- Indicator decreases when the price moves in the direction of the trend - its completion;
- Price versus trend movement is accompanied by volume increase - a sign of trend reversal.
! A convenient way to make sure:
Draw a trend line on the Volumes chart;
Compare with the trend line direction on the price chart.
The most promising situation is when the directions of these lines differ dramatically.
Despite a steady uptrend, Volumes on EUR/USD has been steadily declining for weeks. Such a situation is a sure sign of a trend fracture. At the initial growth of volumes you made a transaction for the sale of the asset. The market quickly confirmed your correctness, and within the next week you were able to earn about 500 points.
For such differences in trend directions, there are special names:
Bearish divergence - the indicator schedule decreases against the background of price increases.
Bullish divergence - the price drops and the trend on the Volumes chart becomes upward.
The most important signal for you that Volumes can send is a marked increase in the number of deals that should be related to the direction of the price movement. But if the activity in the market is small and continues to decline - it is an indicator of uncertainty: You should move away from business and wait for the formation of a stable trend.
Advantages and disadvantages of the Volumes indicator
Volumes is certainly a useful tool:
Ahead of price changes, predicting future market movements;
Allows to determine the correct direction of price movement;
can confirm a trend;
Indicate a market reversal;
Simple and easy to use.
Does not always capture meaningful price changes;
Prone to surges on short timeframes;
Subject to technical factors: the opening of large exchanges is always accompanied by an increase in volumes.
To obtain more reliable results, it should be refined "under itself": set up according to its strategy, test for compatibility with it and use in combination with other tools, such as the Bollinger lane indicator.