Not all traders know how to use the Forex volume indicators. Many of them think that the signals of these indicators are not important and they shouldn’t be taken into account during trading. Today we will review the useful and informative indicator, the Forex volume indicator, in detail. If you know how to interpret signals of the Forex volume indicators, it can become your ‘magic wand’. So, let’s begin! In this article, we will explain the usefulness of the Forex volume indicator and review its signals.
Forex Volume Indicator
You don’t have to download or buy this indicator as the developers of MT44 took care of everything. The Forex Volume Indicator is integrated into the platform so the only thing you need to do is turn it on. If you don’t have the MT44 trading terminal, it is highly recommended to download and install it.
Installation of the Forex Volume Indicator to the Terminal Desktop
If you know how to do it, you can skip this part. Installing the Forex Volume Indicator is very simple. Right-click on the chart and select ‘Volumes’ or press Ctrl+L. Follow the instructions to install the full-scale indicator. Find the button ‘Indicators’ in the upper menu of the terminal. Select ‘Volumes’ - > ‘Volumes’ in the drop-down menu.
You can adjust the colors and thickness of the lines yourself in properties of the indicator. To do it, right-click on the indicator and select ‘Volumes properties…’. That’s it for installation and adjustments!
Why do Many Traders Neglect the Forex Volume Indicator?
In fact, the Forex volume indicator doesn’t show a real trade volume, i.e. it doesn’t show the direct amount of money coming into the market. There are no indicators capable of meeting this challenge, because Forex is an over-the-counter market, so it is impossible to track the real volume of incoming funds. That is why many traders believe the Forex volume indicator doesn’t show the real money flow, so don’t use it.
The essence of the Forex Volume Indicator
The indicator shows tick volume. What does this mean? It means that it counts the number of ticks performed during the formation of a candle.
Why is it Important to Take into Account Tick Volume?
All traders know that the endless fight between the bears and the bulls (the sellers and the buyers) takes place on the market all the time. A price chart shows who’s currently winning and losing. If price moves up, it means that the bulls are stronger and vice versa. Tick volume illustrates the intensity of this fight. It shows whether a trend is in full play or if traders are taking no interest in it. Are the bulls much stronger right now or not? Should you buy hoping for further growth? Maybe the bears are regrouping ahead of a new rush or there are no bears on the market at all right now. As you can see, the simplest Forex volume indicator can give you vital information about market composition and its psychological structure.
The Forex Volume Indicator in Monetary Terms
For convenience, we can look at the financial aspect of the Forex volume indicator. Bear in mind that several hundred million dollars (and even several billion dollars) are spent per tick. Multiply the number of ticks by value of their performance and – presto! – Now we know the volume of incoming funds! But you won’t notice a big difference because there is no difference. Ticks are performed for money. It is abundantly clear. We see the number of ticks in the indicator, i.e., as a matter of fact, the Forex volume indicator shows the amount of money coming into the market but the indicator does it in the form of ticks.
How to Interpret Signals of the Forex Volume Indicator
Let’s be clear on this point: don’t use small timeframes (less than H1) to analyze tick volumes. There is too much market noise on these timeframes. Moreover, it is quite difficult to determine the true state of things using such short periods of time. Bigger timeframes (H1, H4, D, W) allow the Forex volume indicator to collect more accurate information. Let’s examine the signals of the Forex volume indicator and learn to read them. These signals can be used to analyze specific candles as well as analyzing general market movement.
Look at the picture below. One small bar in the middle of the picture is marked by a small blue checkmark. The greatest signal from the Forex volume indicator corresponds to this bar. Why? As a rule, the biggest candles have the greatest volumes.
Such phenomena can occur on a very uncertain market. Great volumes tell us about the strongest fight between the bulls and the bears. Nevertheless, the forces are equal and the price stands still. This is the most dangerous moment to enter the market as it is so uncertain who would win. The price could start moving rapidly upwards or downwards at any moment so it’s best to abstain from entering. It’s like tossing a coin – hit or miss, win or lose.
Connection of Bars
Now look at the next white bar. It is very small, too. You can see that its volume decreased a little and the market raised a little. It points to the fact that some bears left the market. They might be getting ready for the next fierce fight or are just waiting for the result of the fight to enter the market more easily. Let’s see what happened next.
The Bulls Retreat
The bulls had spent their potential on the white bar and understood that resistance required too much money. The next longer black bar tells us that the bulls retreated and only the bears remained on the market. Volumes are almost minimal. There is no movement. It means that there is no resistance from the bulls’ side. The following three small bars (one white and two black ones) are small encounters. The bears continue pursuing their own line and their number gradually grows. You can see it thanks to the growing volumes. And price slowly moves downwards.
The Bulls Give Up
The bulls are finally exhausted. It is obvious that there are fewer bulls than bears and they have to waste a lot of money to support the open positions. But it’s all in vain. The bulls understand that they’ve lost and they retreat. At the same time, the bears strike a new blow to the market. We see a long black bar which is the ‘win’ of the bears. They’ve earned quite a lot of money and are pleased with themselves. Volumes decrease and movement slows down on the next candle. It is a very interesting story, like a siege of a fortress. The bulls have lost. Try to read the market by yourself. Open your MT4 trading terminal and train a bit. If you don’t have one, you can always download it for free. For starters, select a random area and analyze the course of a trade. Then you can read the current price and determine what’s going on in the market right now.
Volumes in movement
If you see a swift decrease in volumes on the market, you can say it’s almost certain that the interest in this movement is slackening. Most likely, it would stop and a correction, a flat or a reverse would start. You can then start preparing to exit the market. Look at the picture above and the bars marked with red rectangles. Volumes decrease after the long bar (marked with checkmarks). The supporters of this movement exit the market and only the most loyal ones stay. Then a flat starts.
You can see divergences of three different oscillators and also a strong decrease in volume. Then an inevitable market reverse occurs. If you analyze the market and see that there is a divergence on the movement – it’s bad. It means that the movement could end. And if there is a decrease in volume it is the end. A correction or a reverse is almost inevitable. The Forex volume indicator is good confirmation of this. Of course, other oscillators should also confirm the signal of your oscillator. In short, if you see this situation – put your best foot forward and run!
The Forex volume indicator is quite interesting although many traders are skeptical. Now you know that you don’t need to be. The Forex volume indicator is unique in terms of the degree of its usefulness. Not many indicators can boast such objective information. It is recommended to include the Forex volume indicator to your trading strategy. It would be a useful and helpful addition.