What is Volume Trading Strategy
Volume trading in forex is all about trading currency pairs with high buying or selling pressure. It can measure a market trend's strength and provide traders with ideal entry points. In our article, we will discuss the volume trading strategy in forex in depth.
What is volume in forex?
Volume in forex refers to the total number of currency pair units being traded in the market over a period of time. The higher the number of units being traded, the higher the currency pair volume and vice versa.
- A higher volume during an uptrend indicates a strong bullish trend and signals traders to place long orders.
- A higher volume during a downtrend indicates a strong bearish trend and signals traders to place short orders.
- A lower volume during an uptrend indicates a weak bullish trend continuing to a bearish reversal and signals traders to place short orders.
- A lower volume during a downtrend indicates a weak bearish trend continuing to a bullish reversal and signals traders to place long orders.
How to calculate volume in forex?
Volume in forex is measured by counting the total tick movements as currency pair prices move up and down in ticks. Ticks refer to a small fraction of price change and are valued as a fractional value. Ticks measure the minimum downward or upward movement in the currency pair prices, and the higher the tick, the higher the volume traded, and vice versa.
Factors to consider to trade with forex volume
When the currency pair prices are continuously rising, they depict a strong upward trend which also means that there is a strong buying interest for the currency pair. This, in turn, leads to an increased volume being traded from the buyer's side and signals market continuation. On the other hand, when the markets are choppy and are not following a particular trend, it depicts that the volume being traded is low, and the markets can potentially reverse.
When the market has continued in a particular trend for long and starts witnessing an opposite movement in the prices, wherein the volume is still high, it indicates a strong possibility for the market to reverse.
A bullish sign indicates high buying pressure. This in turn means the volume is also increasing, and the strong trend is going to continue in the near future.
Breakouts vs. false breakouts
When there is a price breakout during a current trend, and the volume decreases, it indicates a higher probability of a false breakout and signals traders to hold onto their trades. The real breakout occurs when the currency pair prices break above or below their current prices with an increasing volume. This indicates traders to place orders along with the market and increasing volume.
Traders can compare the volume being traded today to the volume that was traded for a currency pair over the last one to five years. The more recent the data being compared, the higher the chance of future volume prediction being correct. If the recent data shows a high volume, traders can place orders along with the current trend, and if the recent data shows a decreasing volume, it is better for the traders to trade against the trend.
Forex indicators used to identify forex volume
1. On-balance volume (OBV)
The OBV is a technical indicator measuring buying and selling pressure in the forex market by adding volume on up days and subtracting it on down days. Up days or up volume is when the currency pair prices close higher than the previous day and down volume is when the currency pair prices close lower than the previous day.
2. Accumulation/distribution (A/D)
A/D is a volume indicator that calculates the cumulative volume of a currency pair. It determines if the currency pair is being accumulated or distributed over time by measuring the currency pair's closing price and comparing it to its price bar's range.
3. Volume oscillator (VO)
VO measures currency pair volume by determining the relationship between a slow-moving and fast-moving average. The difference between these two is then represented as a histogram to evaluate if the currency pair is in a bull phase or a bear phase.
4. Chaikin Money Flow (CMF)
Chaikin Money Flow is an accumulation/distribution indicator that measures the volume of money flow when a currency pair is traded. The values oscillate between -100 to +100, generating buy or sell signals. The closer the currency pair's closing value is to its high, the higher the accumulation and the closer it is to its low, it is a distribution.
5. Tick volume
Tick volume represents the number of traders participating in the market. One tick represents one transaction, and the higher the tick, the higher the volume that traders can use to place orders, along with the current market trend. Tick indicators are able to measure the total number of transactions over a period of time and represent price change as bars on a graph appearing below the price charts. When the volume of the currency pair is more in the current period compared to the previous period, the bar appears green, and if it is less than in the previous period, it appears red.
Top forex volume trading strategies
1. OBV trendline strategy
The OBV trendline strategy makes use of price trendlines to determine if there is an increasing volume in the market or a decreasing volume. Whenever a currency pair price closes more than the previous day's close, it is considered an up volume, and when it closes below the previous day's close, it is considered a down volume. The total of all the up and down volumes forms the OBV line.
- When the currency pair is in an uptrend with a high volume, and the OBV line is rising too, it indicates a continued uptrend and signals traders to place more buy orders.
- When the currency pair is in a downtrend with a high volume and the OBV line is falling, it indicates a continued downtrend and signals traders to place more sell orders.
In case the currency pair volume stops increasing during the current trend, there is a chance of potential reversal. To confirm this, traders can use the 20-period moving average trendline along with the OBV indicator.
- If the OBV line falls as the price line increases, it indicates a bearish reversal and signals traders to place short orders.
- If the OBVB line rises as the price line falls, it indicates a bullish reversal and signals traders to place long orders.
2. OBV divergence strategy
The OBV divergence strategy focuses on market reversals that occur during periods of low volume. It indicates the direction in which a price breakout can occur by comparing the lows and highs of the OBV line compared with the price line.
- When the price line makes a lower low, but the OBV line makes a higher low, it indicates a bullish divergence and signals traders to place more long orders.
- When the price line makes a higher high, but the OBV line makes a lower high, it indicates a bearish divergence and signals traders to place short orders.
In this strategy, during a bearish divergence, a stop loss order can be placed above the recent swing low. As soon as the OBV line confirms the divergence, you can exit or continue in the trade accordingly. You take a short position when the price breaks below the existing trendline and hold onto it as long as the price trends lower around the support price level. On the other hand, when the OBV shows a bullish divergence, a stop-loss order can be placed below the recent price swing. As soon as the OBV line confirms the divergence, you can place a long position at the point where the price breaks above the existing trendline. You hold onto the position as long as the currency pair price is trending higher than the resistance level.
3. Percentage of volume trading strategy
The percentage of volume trading strategy is also called the participation rate strategy, which executes a forex order based on the percentage of the trade volume over a specific period of time. With this strategy, you can limit the total amount of contribution in the forex market compared to the overall average daily volume traded, which helps in minimising risks.
4. Price volume imbalance strategy
The price volume imbalance strategy assesses the order flow and the current buying and selling prices to predict the short-term trend direction of the currency pair. The order flow is generated when sellers and buyers on the forex platform place the orders they intend to trade and reflects the potential market direction. The balance or imbalance between the buy and sell orders being traded. The higher the balance, the higher the volume (and balance) being traded and vice versa. However, if the bid and ask orders do not match in number, there is a high imbalance, which indicates a short-term trend direction.
- When the imbalance is on the upside, meaning that sell orders are being filled more than buy orders, it indicates that there is a short-term bullish trend and indicates traders to go long.
- When the imbalance is on the downside, meaning that buy orders are being filled more than sell orders, it indicates that there is a short-term bearish trend and indicates traders to go short.
5. Volume by price strategy
Volume by price strategy plots the currency pair's volume on the vertical axis. This provides traders with an idea about the volume that has been traded for the currency pair at different price levels. It also helps in identifying extreme volume areas that depict key support and resistance price levels. This generates ideal buying and selling price points.
- When the currency pair has a high trading volume around the support level, it indicates a downtrend continuation and signals traders to place short orders.
- When the currency pair has a high trading volume around the resistance level, it indicates an uptrend continuation and signals traders to place long orders.
Once a volume by price chart is plotted, it illustrates high selling and buying pressures. When there is heavy resistance, the areas between the bar are shaded green, indicating a strong bullish trend, and when there is heavy support, the areas are shaded red, indicating a strong bearish trend.
Use your first volume trading strategy
The higher the volume, the safer it is to place an order. With volume trading strategies, you can analyse the existing trend's strength and trade according to the existing volume. Start trading with our forex trading platform in Australia today and get access to several volume trading strategies and technical analysis tools. Sign up for a live trading account or try a risk-free demo account on Blueberry Markets.
How to Use The Bill Williams Indicator
Bill Williams Indicator is helpful in analysing trending markets, reversals and momentum.
How to Use Relative Vigor Index in Forex
The Relative Vigor Index (RVI) is a technical analysis indicator that helps measure a trend’s strength in forex trading.
Technical Trading Strategies for Day Traders
Technical trading strategies for day traders include technical analysis tools to identify short-term trading opportunities in the market.
How to Use The Force Index Indicator in Forex?
The Force Index indicator combines the currency pair’s price and volume to determine the power of bulls and bears in the market.
The Ultimate Guide to Trading Trends in Forex
Trading trends in forex provides you with opportunities to identify the strong market direction and enter an order accordingly.
MT5 Indicators Every Trader Should Know
MT5 is a forex and stock trading platform that enables traders to place automatic orders.
Top Low Spread Scalping Strategies For Forex Traders
Scalping strategies allow traders to leverage on the small price changes in the forex market to turn the trends in their favour.
What is Forex Currency Swap?
Forex currency swap helps reduce foreign borrowing costs and mitigate exchange rate risks.
What is Forex Spot Trading
With forex spot trading, one can make significant short-term profits by trading at prevailing prices.
How to Short Sell a Currency
Short selling enables traders to place lucrative forex orders even in a falling market.
How to Use The Chaikin Money Flow Indicator
The Chaikin Money Flow indicator provides future market direction by analysing the strength of the market trend and underlying buying or selling pressures.
What is Momentum Trading? Top Momentum Trading Strategies
Momentum trading leverages market volatility to the trader’s advantage by identifying the strength of the market’s current trend.
How to Trade With VWAP Indicator in Forex
The Volume Weighted Average Price (VWAP) helps eliminate any unwanted price fluctuations during the trading period.
5 Top ADX Trading Strategies
The Average Directional Movement Index (ADX) strategy measures the forex market’s overall strength.
How to Identify a Trend in the Forex Market
Identifying market trends in forex is also helpful in understanding if your trading strategy is going as per plan and where you can improve.
Forex Trading Robots: How Do They Work?
Forex trading robots make multitasking possible by processing multiple conditions like order entries/exits and entering stop loss orders automatically.
What Are Momentum Indicators in Forex
Momentum indicators measure how strong the price change is in the currency pairs.
How to Use Gator Oscillator For Forex Trading
Gator Oscillator helps in identifying a trending or consolidating market.
What is The Exponential Moving Average
Exponential Moving Average (EMA) helps in understanding the market’s trend direction.
Top Forex Volatility Indicators
Forex volatility defines the risk an investor takes in the market. The higher the volatility, the greater the risk and the higher the potential returns.
How to Use Forex Market Sentiment Indicators
Sentiment indicators in the forex market indicate extremely volatile market conditions.
How to Use The Hanging Man Candlestick Pattern For Forex Trading
The Hanging Man Candlestick pattern provides downtrend reversal signals, which helps traders place sell or short orders to profit off falling markets.
How to Add MT4 Indicators
MetaTrader 4 comes with several built-in and custom indicators to boost your trading strategy.
Top MACD Trading Strategies
Moving Average Convergence Divergence (MACD) strategies enable traders to measure market momentum and trend strength.
Top Indicators for MT4
MT4 indicators help analyse forecasted currency pair prices and place exit or entry orders accordingly.
How to Trade Bullish and Bearish Divergences
Bullish and bearish divergences enable you to trade market reversals.
Top Support and Resistance Indicators
Support and Resistance indicators identify price points on the forex chart where the markets can potentially reverse.
What is The Donchian Channel Indicator
The Donchian Channel indicator can determine volatility and potential breakout signals in the market.
How to Install MT4: A Beginner's Guide
MetaTrader 4 (MT4) is a powerful forex trading platform with a user-friendly interface and advanced analytical tools for automating trading.
What are Trendlines in Forex Trading?
Trendlines in forex provide clear market signals for placing long or short orders.
Market Order vs Limit Order
Market and Limit orders help execute automatic trading transactions, as per your trading preferences.
Bearish and Bullish Markets
In the trading world, it is essential to be aware of the bull and bear market trends because they define the direction of the market
How to Read Trading Charts
Trading forex live charts can help identify ongoing market trends, which can help you place successful traders.
Top Reversal Patterns For Forex Trading
Reversal patterns provide traders with price levels at which the market can potentially reverse.
How to Find The Best Forex Trading Signals
Forex trading signals are important market triggers that provide traders with ideal entry and exit price levels in the market.
Top Forex Trading Strategies That Actually Work
Trading in forex, you will come across several forex trading strategies -- some more complex than the others. It is immensely crucial to start forex trading with the right strategy.
Scalping vs Swing Trading: What’s the Difference?
Every forex trader has a different purpose, objective, time constraints, and investment capital. The right forex trading style for you depends on your main trading goals and requirements.
What are Volume Indicators
Volume in the forex market can be used to determine the upcoming market trends. Volume indicators are forex trading indicators that can identify if the volume for a particular currency pair is high or low, providing traders with market continuation and reversal signals
Shooting Star Candlestick Pattern
The Shooting Star Candlestick Pattern can identify bearish market reversals and provide traders with ideal price levels to short or exit the trade.
Top Trading Chart Patterns
Predicting future currency pair prices help in confirming market continuation and reversal signals.
What is Slippage in Forex Trading?
Slippages occur when a currency pair order is executed at a price different from the set market order price.
Buy limit vs Sell Stop Orders in Forex
Placing buy limit and sell stop orders help employ a price control strategy on forex trades. Let's take a look at buy limit vs sell stop orders.
The Best Time Frame For Forex Trading
A time frame is a designated time period where forex trading takes place. Time frames can be measured in minutes, hours, days, weeks, months and years.
Top Technical Indicators in Forex
Technical indicators are a market direction signal based on the current and historical price movement of a currency pair that provides traders with future price expectations
Top Continuation Patterns
A continuation pattern indicates if the current market trend is going to continue in the same direction or not
How to Ace Divergence Trading in Forex
The forex market is all about timing your trades well. Divergences give traders a market reversal signal right before a price trend changes
How To Trade Forex With Japanese Candlesticks?
A Japanese Candlestick is a technical analysis tool used to analyze the currency pair’s price movement in the forex market.
Top Momentum Indicators To Analyse Trend Strength
Momentum indicators are technical analysis tools that determine in which direction the market is headed and how strong or weak the ongoing trend is
Types of Moving Averages Every Trader Should Know
Moving Average is a technical indicator which averages out currency pair prices in a specific time period in order to accurately identify market trend reversals and support-resistance levels.
8 Popular Intraday Trading Indicators
Intraday Trading Indicators help place successful short-term trade orders in the forex market.
What is the Tweezer Candlestick Formation?
The Tweezer Candlestick formation is a reversal pattern that indicates either a market top (strong uptrend) or market bottom (strong downtrend)
Average Directional Index
The ADX is a strength indicator that measures how strong or weak a particular market trend is.
How to Use Elliott Wave Theory For Forex Trading?
The Elliott Wave Theory analyses a currency pair’s long-term price movement in the forex market.
What are Pivot Points in Forex
Pivot Points help traders identify market reversals. With Pivot Points, traders can predict the support and resistance levels of a currency pair to make entry and exit decisions.
Keltner Channel is a technical indicator that provides traders with strong continuation signals and trend directions by assessing a currency pair's price volatility.
Leading vs Lagging Indicators
Leading and lagging indicators help traders measure the future and current performance of a currency pair, respectively. These indicators can help make successful trading decisions.
What is Relative Strength Index?
Relative Strength Index (RSI) helps traders understand how frequently the currency pair prices change in the forex market to predict the future market prices.
Wide Ranging Bars
Wide Ranging Bars are strong momentum indicators that help traders understand the market direction and identify ideal entry and exit points.
Harmonic Price Patterns in Forex
Harmonic Price Patterns allow traders to predict future price movements and trend reversals to make ideal entry and exit decisions in the Forex market.
Double tops and bottoms
Double Tops and Double Bottoms chart patterns help traders identify solid bullish and bearish trend reversals in the Forex market, and in turn, find the ideal market entry and exit points.
Falling and Rising Wedges
When you are trading currency pairs in the Forex market, it is essential to know when the market can possibly reverse. The Falling and Rising Wedges pattern help identify market reversal signals and accurate market entry and exit points.
Forex Scalping Strategy
Scalping refers to trading currency pairs in the Forex market based on real-time analysis. With Forex scalping, you hold a position for a very short period and close once you see a profit opportunity.
Symmetrical Triangle Pattern
Symmetrical Triangle Patterns help identify market breakdowns (price fall) and breakouts (price rise), and in turn, help you plot the entry and exit prices for profitable Forex trading.
Introduction to Technical Analysis in Forex
Technical analysis in Forex trading provides you with significant market trends, reversals and fluctuations and in turn helps you long and short term trades.
Trading breakouts and fakeouts
Breakout and fakeout trading enable traders to take positions in rising and falling markets.
Fundamental Analysis in Forex Trading Explained
Fundamental analysis in Forex trading is one of the several methods you can use to determine the relative security and intrinsic value of a nation’s currency.
8 Top Commodity Trading Strategies
Commodity trading is one of the best ways to diversify your portfolio and protect yourself from losses incurred due to inflation.
What is a Doji Candlestick?
The Doji Candlestick is a pattern used in technical analyses of trend reversals in a market.
Moving Average: The Complete Guide
Moving Average is used in Forex trading to compare the current currency pair pricing and where it stands with respect to the current average pair prices.
What is Volatility Index (VIX) and How Do You Trade It?
One of the most popular trading markets in the world, the foreign exchange market allows investors to make quick money by trading currencies.
Forex Profit Calculator
On average, a Forex trader can make anywhere between 5 to 15% of the initial amount they invested in the market.
Understanding markets gaps and slippage
The foreign exchange rate reveals valuable details about particular currencies a trader wishes to trade-in.
What is a pip in forex?
When trading in the Forex market, you need to have a close eye on two currencies at the same time. PIP helps you denote the change in a currency pair’s value.
Introduction to Order Types in Forex
Forex has different order types which allow traders to automate entering and exiting positions.
Using orders to manage risk
Forex risk management includes a robust set of rules and regulations that protect you against Forex's negative impacts.
Managing risk in 7 steps
Risk management in Forex is essential to individuals, groups of individuals, and organizations since it enables them to implement measures that help mitigate Forex risk and its negative impact.
Bullish and Bearish Flag Patterns
Blueberry Markets discusses why it is essential to study the bullish and bearish flag patterns in Forex. Learn more.
Master risk management and
become an expert forex trader.
Move on to the advanced course.
Guide to Forex
Enter your details to get a copy of our
Start a risk free
News & Analysis
Catch up on what you might
have missed in the market.