What is a Volume Indicator?

by?William Naranjo?on August 12, 2022

Despite the fact that Forex traders search for any advantage they can get, a volume indicator is frequently the last thing they look at. Many novice Forex traders focus on the graph first. A rising currency is frequently viewed as desirable since it might continue to rise. But how can you be sure that this pattern will hold? Although a car with a large engine is appealing, why not go behind the hood?

Feel the (driving) force

A volume indicator is a measurement that shows how many securities were traded over a specific time period.?Any technical trader will examine the graph, but how frequently do they examine the factors that drive the graph? Someone must be pushing the graph?if it is to continue moving either upward or downward.?Buyers or sellers are intended. You may be able to determine which way the graph is moving if you can determine whether there are more buyers than sellers (or vice versa).

Don’t let your eyes fool you…

Indicators of volume can be used both ways.?Despite the fact that we have already discussed utilizing it to foretell the graph’s future direction, it can also be used to explain unusual movements.?It would be a good idea to monitor the volume?if you wake up to discover a significant move in a stock at a slow time of the year (for example, August or December). If volumes are modest, a sudden rush of orders — not necessarily enormous ones — can trigger a significant move that will be stronger than the demand predicts. The share price may have spiked as a result, but this was actually a function of artificially high volumes.?Be aware of this before you start trading this trend!

How many volatility indicators are there?

Simply simply, a lot of them. You can use a couple of the ones i listed below during volatility trading.

• Average volume:?Fairly simple in that it is the number of securities that have been traded over a period of time. The devil is in the detail though:?check what the time period is!?It can be all sorts such as minutes or hours.
• Volume momentum:?as the name suggests it measures the?growing force of buyers.?In effect it is a multiplier factor, where you are looking for a growing number of buyers (or sellers!) at each data point.?Ideally you want to spot this early so you can ‘ride the wave’?and eventually get out before the?momentum?changes direction.
• Force index indicator:?a more complex volume indicator,?the force index requires a bit of mathematics.?It assigns a number to the power required to move a security.?It can be particularly useful to spot when a security is going to break out,?before volume momentum takes hold.
• Volume oscillator:?An interesting measure as it plots the relationship between two moving averages.?This allows you to gauge which is the strongest between the two and which may help you place a Forex trade.
• Balance volume:?Another measure which helps to predict a breakout,?it works by showing the relationship, or lack of,?between volume and movement in the price of a security.?If there is a sudden increase in volume but no noticeable move in the price of the security, then the likelihood is that a sudden and strong directional move will occur.?Balance volume helps identify this.

Conclusion

Other indicators exist, and one of the most well-known is the?Relative Strength Index (RSI), which is something you should be aware of. It can be used in?forex trading?as well as the trading of many other?securities.?All indicators are helpful, but be careful!?Garbage in, garbage out… Although it is frequently used to indicate that the data being fed into a model can be junk, giving you junk results, it can also be used to characterize signs. They can be relied on to corroborate trade theories, but not always!?By adhering to a disciplined approach and your trading plan, keep your wits about you when trading currency volatility!

by?William Naranjo?on August 12, 2022