Forex trading volumes - what is it and how to use them?
Market research using Forex volumes is another forecasting method that is used to determine the direction and strength of a trend, depletion of a trend and its reversal. In terms of efficiency, the method is in no way inferior to technical and fundamental analysis, however, the principles of volumetric analysis are fundamentally different from other forecasting methods. Let's figure out what Forex volumes are, where to find them and how to use them in trade.
Volumes on the Forex and the stock exchange - what is the difference
Initially, a voluminous analysis was present only on stock exchanges that have real statistics on the number and volume of transactions. On Forex, such data is not available, since this market does not have a single center.
Volumes on the exchange are called trading volumes that traders made per day. They are calculated in lots. Each exchange platform has its own statistics, which fall into the “glass” of prices. Here, traders can see how many lots and at what price were bought and sold per trading day.
In the Forex market, it is impossible to calculate the real trade turnover. There is a similar tool here - tick volumes. They show the number of ticks - price changes per unit of time. It is generally accepted that each tick corresponds to a new deal. With this approach, Forex order volumes are not taken into account. Ten traders can open ten transactions for 1 lot, while large banks and investment funds can enter the market with one position, the volume of which exceeds the total volume of tens of thousands of orders of small market players.
The effect of Forex volumes on the price of a currency pair
From the point of view of volumetric analysis, the main driving force in the market is big money. It is believed that large market participants in the form of investment funds, banks, international corporations are able to expand or strengthen the trend. To make money in the market, simply follow the big money, that is, open positions in the same direction as large players.
If participants with large volumes enter the market, a strong directional movement should be expected. If volumes grow, so does the price. A fall leads to a decrease in the value of the asset.
The ability to work with Forex volumes allows traders to find weak and strong levels, track price areas in which large market figures are interested.
Horizontal and vertical volumes
Forex volumes come in several forms. Tick volumes are described above, which show the number of price changes. There are still horizontal and vertical. Let’s figure out what the difference between them is.
Vertical volumes are located below the price chart. Unlike ticks, they show the total number of traded lots for the time period, however, only one specific site is used to collect statistics.
Horizontal volumes are more interesting for traders. They are displayed on the right or left side of the screen in the form of horizontal stripes, the length of which corresponds to the number of traded lots at a particular price. With their help, you can determine the interest of traders in certain levels and calculate the support and resistance for a currency pair.