Volume in Currency Trading
Volume in Currency Trading
Volume is an important indicator in technical analysis as it is used to measure the relative worth of a market move. If the markets make a strong price movement, then the strength of that movement depends on the volume for that period. The higher the volume during the price move, the more significant the move. Technical analysts are primarily looking for entry and exit price points, and volume levels provide clues about where the best entry and exit points are located.
Volume is a key component in technical analysis and in momentum based trading strategies. Heavy volume usually leads to sustained price trends and higher quality intraday momentum. In contrast, lack of volume usually leads to a lot of broken keyboards, computer screens and accounts. So it can be very beneficial for a trader of any instrument to have a sense of volume or level of market activity so you can better gauge your expectations and allow yourself to adjust risk or hold winners longer.
If you watch the markets when important news get released then you might have noticed there tends to be very high volume on the candlestick the news get released on. News events are not only some of the most difficult events to predict in the market but also some of the most chaotic, if you have ever watched the market when big news events get released you will see the price tends to jump around a lot, this is due to everyone trying to work out what the news release means for direction in the market.
Volume after all is the fuel that drives the market, both higher and lower. If there is no volume then the market is unlikely to move far. It takes effort for a market to move either higher or lower and if there is no effort or volume then the market will move into sideways consolidation and only break out once volume increases significantly. Also if you look at the volume you can see after the big spike on the large bearish candle it begins to steadily decrease, all of this volume is coming from the reactive traders and to some extent the trend traders who are selling just because they see the market going down.