In addition to Open, High, Low and Close, many technical analysts like to look at the Volume as a guiding factor in their trading making decisions. The Volume is nothing more than number of full contracts that were traded during stated period. In EUR/USD currency markets, one full contract equals 100,000 USD and should not be confused with Mini lot (10,000 USD) or Micro lot (1,000 USD).
But what actually can the volume number tell us? Conventional wisdom states that it can validate the strength of the underlying move. Thus, a big up move that is not supported by large volume may be produced by very few players. And since it is not broad based, it may indicate that it may be short lived.
Day traders may like to look at every hour’s volume to see if the pace of trading is accelerating or not. It is also good idea to compare it during same hours of a day to see how it stacks against each other. That way you can track the strength of the New York opening move (from 8:00 till 9:00 EST) every day. You can actually use spreadsheets to compute average volume for each hour of the week (let me know if you need help with that, and I will post how to do it), so you can track when something out of the ordinary is happening.
Unusually low volume always indicates lack of players – if you look further for explanation why this is happening, you may discover that maybe everyone is staying on a sidelines because some big announcement is about to happen. That way you may be less inclined to jump in, or at least scale back on the volume of your trade. Low volume may also mean that big players are away from trading terminals as they may be taking an early leave due to a coming holiday. Then you may stipulate that market volatility may be greatly reduced, so you could position yourself better with tighter profit targets.
There are some indicators that are derived from the volume, such as Volume Oscillator or On-Balance Volume, that may be worth exploring.
Also worth taking into consideration is that different trading networks calculate volume based on contracts executed on their own network, and not on the others. That’s why the volume numbers for same trading period may differ from one trading platform to another.
Yet, if you study it extensively, it may provide another piece of the puzzle that can complete the picture of trading success.
You Might Want To Check These Out:
- On Balance Volume
- Forex Trading – Making You Money on Auto Pilot
- Market Update – Trend Confirmations
- Oscillator indicators
- The Importance Of News In Forex Trading
Related Posts:
{ 2 trackbacks }
{ 0 comments… add one now }