2024 Author: Howard Calhoun | [email protected]. Last modified: 2023-12-17 10:16
There are many approaches to the analysis of the foreign exchange market and the formation of trading strategies. Recently, for these purposes, the volume indicator is widely used, based on the indicators of the number of completed transactions for a certain time interval. This is a key indicator, as it provides an opportunity for traders to determine the degree of liquidity of an asset.
Guidelines
In the foreign exchange market, special indicators of the volume of buying and selling are used very actively. They allow you to draw parallels between trade transactions over a certain time. Some of them are able to reflect the spread of the bar. The basic principles for working with volumes are as follows:
- Accentuated price movement within the currency market is necessarily associated with a significant increase in transactions.
- Large volumes can be created by large traders in the form of national and commercial banks or specialized funds.
- Through the dynamics of perfecttransactions at a certain point in time, you can understand the interests of representatives of active trading.
Interpreting the volume indicator chart is quite simple. With an increase in the number of completed transactions, the histogram column increases, and with a decrease, it decreases. There are no numbers on the screen. Everything is defined visually.
What do the signals show?
Reflected signals are not always unambiguous, since volumes can show the number of completed transactions with an unknown amount of money. Therefore, it is not entirely clear where the finances were directed. They could go for sale or purchase. In this regard, there are people who do not support this approach to trading.
However, there are certain patterns in the interpretation of volume:
- Growth on an uptrend may indicate the presence of buyers who are interested in acquiring a traded asset at a set rate. This means that the current dynamics will most likely be maintained in the near future. The price will continue to rise.
- Declining on the same trend suggests that the market is entering another state called overbought. The current market price no longer suits most buyers, so we should expect the situation to turn in the opposite direction. There is a gradual increase in the number of sell transactions, but they are not yet able to reverse the trend.
- Growth in the downtrend largely predetermines its further continuation. If the levelvolume indicator shows a decrease, then a change in market sentiment is possible in the near future.
Such meters perform best when breaking through certain levels. They help to understand the truth or falsity of a possible increase or decrease in price beyond the established line. If volumes grow during a breakdown, then there is no doubt about its occurrence. A decrease in the number of transactions performed may indicate a false breakout.
Vertical type indicator
A vertical trading volume indicator means taking into account data on the number of completed purchase and sale operations, expressed in the form of columns located under the price chart. Each of them tells about the number of trades made for the interval reflected in the terminal.
The vertical indicator determines the mood of market participants at the current moment. After analyzing the resulting chart, you can understand which asset traders are most interested in. This tool demonstrates that active interaction of participants has begun at a specific price level.
Culminating selling and buying points are of no small importance when studying vertical volume charts. In such a situation, there is an increase in the number of transactions by about 5-10 times, if we take into account the average turnover. If the climax appears directly in the direction of the trend, then it should not be used as a signal to enter a position.
Horizontal type indicator
Analysis in thisIn this case, it is done to determine the interest of bidders in the level, while taking into account all transactions made over a certain period. Usually, a histogram of indicators showing volumes for a certain period of time is formed on the left. Each time a deal is made, the number of exchange instruments that was purchased or sold is added to the line.
The more transactions are carried out in close proximity to a certain level, the more important the price level is for traders. The maximum value for a certain period is called the value zone.
The price varies over a long period of time. However, horizontal volume allows you to mark liquidity flows over long periods. You should always think about where the trade is taking place compared to the large volumes of the previous segment.
Cluster type indicator
In this case, the volume indicator involves the analysis of the candle on the chart. It visually demonstrates the number of transactions made at a certain price during the period of plotting the chart element. If you add the volumes for the whole day, then a horizontal histogram is formed.
In cluster analysis, point outliers of the maximum number of operations play an important role. Comparing volumes with price differences makes it possible to find large cash injections. Through clusters, you can find a significant level of support and resistance.
Names of appliedmeters
To choose the best volume indicator, you need to familiarize yourself with the most popular ones. The table proposed in the article presents those meters of the number of transactions that are widely used among traders. They have proven themselves from the best side.
| Name | Description |
| VOLUMES | After adding the indicator, a separate field appears at the bottom. It reflects red and green bars. In an uptrend, an increase in volume signals a continuation of the situation on the market, and in a downtrend, a reversal. |
| ON BALANCE VOLUME | The main function of this product is to determine the balance ratio of completed transactions. Allows you to predict the duration of an existing trend. |
| BETTER VOLUME | Histogram bars are painted in four colors, each of which indicates the situation on the market. It can be attributed to the most informative indicators of all existing ones. |
Why crashes in some situations
Not always used meters of completed transactions reflect the exact picture. This is due to the fact that all prices without rating priorities are fully taken into account. And they are. However, indicators allow you to make deals with a good mathematical expectation. The more parameters that are taken into account before making a purchase or sale of a lot, the higher the chances ofsuccessful result.
As a conclusion
Serious traders do not trade in the foreign exchange market without volume indicators. If they are not a 100% guarantee of achieving the expected result, then they allow you to make certain conclusions regarding the most important points in trading. With the right approach, indicators can help in obtaining high profits. They can be successfully combined with other methods of technical analysis.
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