Traders are able to use various types of forex indicators in order to have a better understanding of price movements in online forex trade; volume indicators are one of them. Volume indicators are used to tell how much a certain currency pair is traded in a given period. Traders need to know how to use volume indicators properly in order to gain profits in online forex trade.
How to use volume indicators in online forex trade
Volume indicators can be used to gauge trading volume, which in turn helps generate various signals in online forex trade. First of all, volume of a given period shows the traders’ interest in the forex market. A rising volume signifies rising market interest while decreasing volume shows the lack of interest in the market. Secondly, volume can also be used to identify reversal signals; if the trading volume is huge but the price drops, it implies a possible reversal of the present trend. If a price moves upward or downward for a long time and then begins to stay in a range with little movement but heavy volume, it usually indicates a reversal in online forex trade. Moreover, Volume can be very useful in identifying bullish signs. If the price is relatively low and volume is relatively huge, it shows that traders are expecting a bullish market in online forex trade. Furthermore, volume can be also used to identify false breakouts. If a price breaks out the range, a rise in volume may indicate strength in the move; conversely, little change in trading volume or even declining volume implies lack of interest or possibility of a false breakout in online forex trade. Traders are able to use volume to indentify false breakouts in online forex trade.
What are the commonly used volume indicators in online forex trade?
Volume forex indicators are often used to tell investors’ interest in the market. Huge volume suggests a start of a possible new trend in online forex trade, while low volume suggests traders’ uncertainty or lack of interest in a particular market. Volume indicators can help traders to know the market better and make decisions in online forex trade.
1. On Balance Volume (OBV) in online forex trade
On Balance Volume is an effective volume forex indicator. It starts from an arbitrary number. Volume is added to the number when the market closes higher or subtracted when the market closes lower. From the total number, traders can get the volume easily. On Balance Volume can also show divergences in online forex trade; for example, when a price rises but volume is increasing slowly or even beginning to fall, it shows a possible divergence in the forex market.
2. Chaikin Money Flow (CMF) in online forex trade
Chaikin Money Flow indicator is based on the theory that overall market strength is often accompanied by increased volume. The chaikin money flow (CMF) was developed by Marc Chaikin and attempts to determine whether a currency is under accumulation or distribution or not by comparing the closing price to the high-low range. In Lehman’s terms, if the price closes near the high range with increased volume, the CMF increases in value in online forex trade. Conversely, if the price closes near the low range with increased volume, the CMF decreases in value. The chaikin money flow indicator was developed as an expansion to the On Balance Volume indicator in online forex trade.