Technical analysis consists of multiple types of indicators, patterns, strategies, and techniques that help you analyze the different aspects of data, statistics, facts, and figures related to price movements and market behavior. It is an important skill of forex trading that every investor must learn and incorporate while trading. Many forex traders only rely on technical analysis sometimes; however, it is advised by experts that it is better to use it among other trading strategies, analyses, and techniques to become a successful forex trader.
In this post, we are going to discuss how to use forex volume in trading? It is a key indicator tool used in technical analysis that is required to plan beneficial trades.
What is forex volume?
In any financial market volume is the amount of trading assets that were exchanged over a particular time. Similarly, forex volume shows the amount of a specific currency pair that was traded in a particular time period, for example in a day, week, or month. It does not calculate the actual transactions that happen during the market hours, especially in a decentralized market, however, it is an estimate of the amount of trading asset that was traded in transactions.
Why is forex volume important in trading?
Forex volume is important for technical analysis, as it is a key factor that indicates whether the market is active or not, and the liquidity of the currency pairs. It is a major point to consider before making trade because if the market is active only then you can make profitable trades.
The importance of volume can be deduced from the below-mentioned functions it plays:
- Volume can help you decide whether there will be a breakout or not. The higher the volume, the higher will be the chance of breakout in a pattern
- It helps confirm the chart patterns, if the volume is high the chart pattern forming can be considered true.
- Also, it confirms the strength of trends. High volume will show that trends forming are true and low volume will show that the trends are not real.
- Helps in identifying trend reversals, which is so important and can give huge profit opportunities.
How can you measure volume in forex?
There are multiple volume indicators available to forex traders that indicate different types of volume measurement.
Here are some volume indicators used by forex traders:
- Volume Bar
- On Balance Volume (OBV)
- Money Flow Index (MFI)
We will end this post on the point that developing a clear understanding of the forex market and learning the importance of all the tools and techniques that help you improve and match your trading style will lower your risks and increase your profits. A professional forex broker has multiple strategies on hand and is prepared in advance to tackle all unfavorable conditions while trading.