logo
Get Our New E-Books For Free

Forex Volume Indicators Interpretation

Professional and senior traders believe that volume doesn’t make sense in forex trading, because this market is really different from stock market. Volume makes a lot of sense in stock market, because the number of offered stocks, supply and demand is completely clear for each company’s stocks, but it is a different story in the currency market.

I had to write an article about volume in forex, because it seems some companies are working on it and are trying to offer some volume indicators that may work on forex market. Although I don’t believe they can do it, and they can offer something that reflects the reality, as many of you ask about volume and are using it on your charts, I am going to clarify a few things about it.

I am not saying there is no such a thing called “volume” in forex market. Any market has a volume. What I am saying is that it is not possible to determine volume in forex market accurately and precisely, simply because forex market is not a centralized market.

Before you read the rest of this article... Submit your email to receive our eBook for Free:

What Is Volume?

If you are a regular investor in the markets then, there are some keywords that you could not have missed. ‘Volume’ is one such word. Be it equities, derivatives or currency trade, volume is an important indicator. From signalling the trend to setting the price, volume is the best friend an stock market investor can strive to have in the market place. So let’s understand a little more and see whether you can use this tool in furthering your currency trade and getting the maximum return on your investment, or not.

Every day a large number of trades are executed in the market. On a particular entity when a large number of trades happen or essentially that which sees a high volume trade, the price determination is perceived as more accurate. In contrast when only few trades are executed on scrip, the price determination happens via a much lower base of individuals, hence consensus for the given price is seen as relatively low. Thus, Volume in one word measures the market worthiness of a trade.  Thus, a sudden spike in volumes within a short time can signal or prepare a trader for an out of the ordinary move or sudden knee jerk reaction based on some news or related development.

Difference Between Forex & Equity Volume

Now you must be thinking a volume is volume, how can equity or forex trade make any difference to volume or its interpretation? Well it does! In the case of equity trade, ever share trade accounts for a separate entity in the total volume trade, however forex trading happens a little differently. It is impossible to keep track of the contracts traded through a given day world over.

The easiest option in this case is, volume is derived from the number of ticks or the change in prices through the course of the session on a particular day. Certain specific numbers of contracts need to be signed for a move in price so, therefore, every tick in the price of a currency pair represents this amount or volume.  Thus, we can deduce that volume plays a key role:

  1. It acts as a corroborative evidence of a change in market trend or specific direction in markets
  2. Price changes can be confirmed with the help of volume
  3. A sudden spike or fall in average volume is one of the best indicators of a change in sentiment
  4. Also, sudden surge in volume could also signal an upcoming event or expected policy action
  5. Volumes are also the earliest indicators of the beginning of a specific price change
  6. Higher volumes during an uptrend confirm the bullish tone in the market
  7. Higher volumes during a downtrend signify the bearish undertone in the market
  8. Low volumes during a price upswing indicate uptrend weakness

Types Of Forex Volume Indicators

The volume can be interpreted in various ways to facilitate accurate interpretation of the market trend and technical analysis of the trends that are underway or that need to be predicted:

Accumulation/Distributor Indicator

This volume based technical indicator is used to determine the flow of money into an asset class. This is essentially calculated by comparing the closing price with the intra-day highs and lows and deriving a weighted average with respect to the trading volume. This is a tool that is used to confirm a trend or identify the turning point of a specific trend in the forex market.

  1. If the Accumulation/Distribution line is rising on the charts, it indicates a rise in prices
  2. In contrast if the A/D line is falling, a downtrend in the specific currency trade can be confirmed
  3. You get a sign for bullish reversal if the A/D line is rising despite fall in prices
  4. Meanwhile falling A/D line along with increasing prices indicates bearish reversal

Money Flow Index/MFI Indicator

This is again an indicator based on forex trading volumes. This technical indicator gives us an idea of the intensity of money flow in specific assets by comparing the extent of rise or fall in prices in relation to the trading volumes. This will give a sense to traders & investors if a particular currency pair is overbought or oversold.

  1. For example in case of dollar-euro trade, if the MFI climbs above 80, it will be considered overbought, once this indicator crosses the overbought zone, you will get a sell signal
  2. Conversely, if the MFI slips below 20, it will be considered oversold, and a buy signal is imminent once it crosses the oversold zone
  3. In case you have a rising MFI and decreasing price movement signals weakening downward trend
  4. When the reverse happens that is you get a falling MFI with increasing prices, it signals a weakening of the uptrend in the market and again a cue to sell.

On Balance Volume Indicators

This is again a volume based technical analysis tool. It basically gives you an idea of the total deals struck in relation to price movement of a specific asset under consideration. It is a handy tool for trend confirmation and point out reversal points.

  1. A rising line stands for uptrend while a downtrend is confirmed by a falling line
  2. A fall in prices coupled with a rising OBV line signals weakening of a potential bullish reversal
  3. The contrary or a weakening of the bearish trend is confirmed by a falling OBV line with the rise in prices.

In recent developments, some brokers are likely to launch some volume indicators. According to what they say, it is expected to track volumes real-time and tests on the same are underway currently. Once finalized, this will be able to provide real currency volume using the broker’s retail platform. To start with, this will be tracking the top 14 currency pairs. This indicator is path breaking in the sense it will be able to provide data on the volume as well as the exact number of transactions on a currency pair.

Thus, far we only have indicators that give out the tick volumes for forex trading. However, this real time volume can provide that edge to your trading practices and confirm price movement a lot more precisely. This data will also be available to the public via the internet.

How Accurate These Indicators Can Be?

Broker can only see the volume of the transactions done through its own platform. It knows nothing about the whole currency market world’s transactions. In case the broker is too big and popular, the volume of the transactions it handles can be a reflection of the currency market transactions. But there is one problem here. A retail broker handles the transactions for retail traders. What about the main participants of the currency market that perform over 80% of the forex market transactions? These participants are the ones who make the price move and form buy/sell signals and trade setups, not retail traders and retail brokers. Even liquidity providers cannot provide an accurate estimation about the global forex market transactions.

The conclusion is that brokers can create some innovative forex volume indicators to attract more clients and customers. However, these indicators simply mean nothing. They just show the volume of the transactions handled through the broker’s platform. That is all.

Now that you know what volume is and what volume indicators do, let me tell you something that makes your life much much easier. You want the volume indicators or any other indicators to trade forex and make money, right? The question is do you really have to use forex volume indicators to be profitable and make money through forex trading?

The short and simple answer to this question is “No”. You already have a great indicator that shows the best time to enter the market. It is a real time indicator that reflects the real forex market activities that makes the price move and form ups and downs, and buy/sell signals. It is the candlesticks.

If you learn how to use the candlesticks, you don’t have to be worried about anything else, simply because candlesticks reflect the real, accurate and precise market events, done by all the market’s participants, not only a portion of them.

If you like to learn how to use candlesticks to see the strongest trade setups and buy/sell opportunities, here is the best place. Make your learning journey as short as possible and become a profitable forex trader within the shortest possible time, risk free. Don’t risk any time and money to become a profitable forex trader. You can do it for free and without spending and losing any money: Become A Profitable Forex Trader In 5 Easy Steps

Join Our 22,000+ Loyal Followers Now & Receive Our E-Book For Free!
Download Our E-book For FREE and Don't Miss Our New Articles!
Enter your email address and check your inbox now:

Article by

"Whether you think you can, or you think you cannot, you are right." - Henry Ford

+ Click Here to learn who we are and why this site was created.

+ Click Here to receive our eBook for free.

I want to...

60 thoughts on “Forex Volume Indicators Interpretation
  1. dragan says:

    Chris,
    If i had to gauge your articles i would give them 100 score, they’re too strong 🙂
    Thank you!
    Dragan

  2. Nick says:

    Hi Chris you almost had me there with this volume indicator stuff 🙂
    I really don’t like indicators anymore, love the candlesticks.
    I want to ask you: You said if you enter a trade you take two positions with the same stoploss order. You also said never to move your stoploss. How do you change then from riskier to safer?
    Thanks again for candlestick trading

  3. Lawrence Smit says:

    hi chris can we say that a flag pole formed on the daily chart with a 600 pip pole

  4. Lawrence Smit says:

    Aud/USD

  5. dragan says:

    CadJpy setup is formed on too strong uptrend…

  6. dragan says:

    Chris, what about a NZDUSD forming setup? could we consider it strong? is the downtrend too strong so we can consider it as a negative point?

    • Chris says:

      Hi Dragan,

      It is a good signal for those who have a short position to collect their profit, or move the stop loss much lower. However, it is risky to go long because market is too bearish and a support line is broken on the monthly chart. A ~200 pips up movement is possible to retest the broken support line on the monthly chart.

  7. steve says:

    hi Chris…the cadjpy short trade setup is formed when the bulls are really strong therefore the setup is a bit riskier. Thanks

  8. ren says:

    Hi Chris
    cad/jpy negatives are trade setup from on a uptrend preview candle is to big bullish and bb are too far a part
    I think I’m right

  9. Lekan says:

    Who dares go short with the sharp uptrend the CAD/JPY pair is experiencing right now(expecially with the huge/aggresive candle of Friday 31/10/14)? Besides both CAD and JPY have been weakening these past days. So CAD/JPY is a no go area for now.
    Just a novice view my boss

  10. Abbas says:

    Hello Chris,
    By my analysis, i will give the USDCHF a 95 score while the CADJPY gets an 85.
    Reasons: USDCHF formed at a solid level and it shows that the bears are willing to push price lower
    CADJPY, bears have a sound intention, but bulls are seemingly too strong at this moment, the upward movement prior to the set up was clearly uninterrupted unlike the USDCHF that had certain input from the bears at a point.
    NB CADJPY may be closing at the mouth of a minor support, a close below could have been better
    Your opinion to this would be appreciated Chris.

  11. Andy Aristiyanto says:

    Hi Chris,

    Another enlightening article Chris. Thanks!

    CAD/JPY is forming a trade setup, but there’s negative point in my opininion:
    the bullish candlestick at 2014.10.23, 2014.10.28, and especially at 2014.10.31 are too big to be ignored.

    What’s your score for this setup?

    Thanks and GOD bless!

  12. Bob says:

    Hi Chris,
    CAD/JPY potential short setup is the first reversal pattern after a very strong bullish movement. Also the current candlestick has a reasonable lower shadow.
    If it closes like this, I would be a bit hesitant on this setup.
    What score would you give it?

  13. Otto says:

    Thank you for the article.

    CAD/JPY negative points:
    -Big bullish candlesticks
    -Strong uptrend
    -Bollinger band angle, bands far apart

  14. Peter Wagner says:

    Hi Chris
    For CADJPY
    Negative:
    1 pattern is at the top of a too strong bull run
    2 Prior candle 2014-10-31 – is too strong – too much bull pressure
    3 Confirmation candle 2014-11-03 has too long a lower shadow (as at a few minutes to close)
    4 BUB angle has maintained steeply up
    5 Price did not reach the 101.044 daily chart Resistance level (but only 8 pips away) – so it may still try to test it. The premature weekly candle seems to have reacted to it

    Chris – when determining the negative impact of the lower shadow of a strong confirmation candle – what length must it be so that it is not too long and hence cancels a too strong setup. Could we say by some % of the whole candle length?

    • Chris says:

      Hi Peter,

      A lower shadow of a few pips is OK but longer than that, like what you see on last closed daily candlestick on USD/CHF which is about 25 pips, is a negative point for a short trade setup. As you see the current daily candlestick is going up strongly which is what the previous candlestick lower shadow signalled.

      • Peter Wagner says:

        Hi Chris
        Thank you for your attention to replies. You are an exceptionally dedicated man. I sometimes feel that my questions just steal your time unnecessarily. If they do I am sorry for that and apologise for my slow comprehension.

        For the discussion point; I think you meant another pair than the NZDUSD –

        However, I see what you mean in the lower shadow influence on the short patterns on the USDCHF & CADJPY daily charts – that todays candle starts to show

        for the NZDUSD – which was a possible long setup – to me is very strong but: – positives:
        1 a fairly strong break to BLB and
        2 a too strong confirmation candle
        3 level support at 0.7683
        negatives:
        1 too strong bear run
        2 confirmation so large that overbought retracement possible.
        Again todays candle confirms this –

        Also, generally speaking, I am seeing that presence of a strong leading bull or bear run has a major influence on the gauged strength meter.

        • Chris says:

          Hi Peter,

          You are welcome.

          No, I meant USD/CHF and the 25 pips lower shadow of the last closed daily candlestick.

          I will analyze NZD/USD today.

  15. Javed says:

    Ah giving CAD/JPY negative points is piece of cake now (Thanks to Chris for being wonderful teacher). Its forming short trade setup on top of very strong up trend. I will wait till next day because the price might try to go up again, so I will have better price and tighter stop loss.

  16. Javed says:

    Chris I entered USD/CHF yesterday itself without waiting for confirmation candle. First because you said that there is butterfly pattern, second my stop loss was tighter just 25 pips. Today price is already in downward and I have moved my stop loss at break even. So its risk free trade for me now.

  17. Javed says:

    Dear Chris. Please analyse GBP/NZD short trade setup and NZD/USD long trade setup. If time permits. 🙂 They both look good to me.

  18. Karakasa says:

    Hi Chris, thanks for the wonderful articles and daily updates. I have learned alot from you for the past 2 months or so.

    CAD/JPY
    As you mentioned, a possible short trade set up on the daily CAD/JPY but liked to hear what the negative points. I would think the negative point would likely be, the exceptionally long white candle established on 31.10.2014. A Stop Loss for a short trade would have to be placed way below this exceptionally long white candle, hence a disadvantage in terms of risk reward returns.

    Appreciate your input and guidance, thank you.

    • Karakasa says:

      Hi Chris, reference to my previous post. My apologies, my mistake in saying a Stop Loss would have to be placed below this exceptionally long white candle on 31.10.2014.

      The negative point with regards to a short trade set up for the CAD/JPY is due to the recent long bullish candle established on 31.10.2014.

      Looking forward to your comments on this, thank you.

  19. okeke says:

    Chris for the short trade set up on USD/CHF I want to go short only if the bears break below the middle band. This is what I do for the strong trade set ups. I wait until it breaks above or below the middle band.

    The negative points for the CAD/JPY short trade set up are that it was formed at the top of a very sharp uptrend with the upper bands pointing upwards. Also there seems to be a small bullish pressure on the bearish candlestick.

  20. William says:

    For CADJPY negative points – at the end of a strong bullish uptrend & a slightly too long lower shadow?

  21. slothinker says:

    CAD/JPY other negative points … the strong bullish movement over the last 13 days; the longish shadow (as Chris pointed out in the USD/CHF analysis above).

  22. William says:

    Plus, 19/9/14 possibly to act as Resistance turned Support at 99.50?

  23. Yomi says:

    Hi Chris.
    CADJPY is not a proper short setup because it formed when the bulls are still more in control. But one might wants to compare it to 22-09-2014 short setup on the same CADJPY D1. Looking at the 22-09-2014 candle, the bear candle has no lower shadow, a big engulfing candle and also considered as a proper short setup after some continuation pattern. Whereas, 04-11-2014 bear candle is not as long as 22-09-2014 bear candle and it also as a long lower shadow. Thanks.

  24. kamal says:

    Hi Chris, I think on cadjpy the uptrend is strong the risk would be higher for a short set up now. That the only negative point I can find 🙂

  25. Raj says:

    Hi Chris

    With regard to CADJPY,
    1. it formed on a strong uptrend and bulls havent lost control.
    2. There is a lower shadow which says bulls are trying to show thier presence.
    Please correct me if otherwise. Thanks.

  26. Lawrence Smit says:

    When would i know, when a strong trade set-up formed for the flag pole.

  27. Lawrence Smit says:

    The other thing is, Although we trade higher time frames, the NFP can easily move 300 pips. Do we take trades before friday on USD.

    • Chris says:

      Hi Lawrence,

      In most cases we are not already in, so there is no harm when NFP is released. In most cases also it doesn’t move that the price that much. Again in most cases of the strong movement that we are already in, a good setup is formed before the news release and the news moves the price accordingly. Like last week when FOMC was released it moved the price agreeable to all of our open positions.

  28. Parson says:

    Hi Chris,
    Do you think it is the right time to go long for eurusd yet?
    I see the graph is making bat pattern plus the previous candlestick formed like a hammer.
    Thanks
    Parson

  29. Maria says:

    Hi Chris,

    Is the latest daily candlesticks of AUD/USD not a strong setup?

  30. Mohamed says:

    Hi .. Chris ..
    That bearish engalfing was just happened after a strong bullish which weakened the set up and we give only 90

  31. Rumen says:

    The only negative point of USD/CHF short trade setup is the lower shadow of the confirmation candlestick. But it is enough for me to consult the longer timeframes. In this case weekly chart is strongly bullish so I’ll not take it.
    Good luck to all.

  32. bassaveli says:

    Hi Chris,
    I’d give CAD/JPY a score of 95, it’s true that the negative points like the strong uptrend and so, but the bearish candle which took the price down between 15 and 25 of september, will have a reversal effect on todays price as well, hopefully i’m right

  33. Lawrence Smit says:

    The way we trade we don’t really bother about fundamentals. The effect currently with the GBP/CAD, where the crude oil prices declining is starting to way heavily on this currency. Am I right with this statement.

  34. Nick says:

    Hi Chris
    There was a long setup on EURAUD and I took it and now Im 120 pips in profit

  35. Redpants says:

    Great article on Volume appreciated Chris. I personally watch it IE; the hugh spike in monthly volume last month in the S&P . Good luck to all this week back to chilling .

  36. Majid says:

    Dear Chris
    the negative points are :
    1 – its at top of a strong uptrend . so the bulls are still strong
    2 – the big lower shadow of bearish candlestick . it means bull are strong and they are pushing prices to high .
    3 – there is a problem with the gap between two last bullish candlestick . honestly i don’t know what is the problem , but i don’t like it !!! , LOL

    bests

    • Chris says:

      You are right Majid.

      • Majid says:

        thank you Chris .
        please don’t laugh .
        i have a problem with gaps . when i see a gap , that usually happens when market start , i don’t trust to before patterns and candles . what is wrong with me ?!! . 😀

        • Chris says:

          No, I don’t laugh. Your analysis was great. You are right when you say there is something in it that you don’t like. I have the same feeling. It is not a good trade setup.

  37. moaied suhail says:

    thanks man . better to forget about volumes now

  38. Casey Ram says:

    There are already too many indicators. So why use Volume when you know it is not going to be accurate.

Leave a Reply :

Your email address will not be published. Required fields are marked *

*