Calculating Forex Volume: Everything You Need to Know24 / 11 / 23 Visitors: 169
Traders need to understand how the market works and how you can learn different skills and techniques to make smart decisions based on accurate data and information. Forex volume calculation is the most important aspect of the Forex market that every trader should know.
Technical indicators such as weighted average price, tick volume, cash flow index and balance volume should be used to calculate Forex volume. It is not a very complex science, but still tedious as it deals with a decentralized market.
Why is volume in the Forex market so important?
Volume is the total number of assets that are traded in a certain period of time. In the Forex market, this term refers to the number of lots of currency pairs that are bought and sold. However, not many traders know about this essential indicator and act without calculating it.
Since Forex is a decentralized market, it is not easy to find the market volume. This is due to the fact that the specific volume for a certain period is not available and the information depends on brokers' data.
According to large institutional traders, brokers have data from the execution of trades by retail traders because trades fluctuate. Therefore, there is also a view that Forex volume can be unreliable for predicting price action.
How to calculate Forex volume?
To calculate Forex volume, you need to use data from brokers such as tick movements. Volume can be measured using Forex volume indicators, which typically calculate the number of ticks (price changes) that have appeared on a time frame for a particular asset. You can use the VWAP indicator, volume indicator, OBV, currency flow index, etc. All these indicators use the previous volume and the current price change in their formulas to calculate volume.
Factors affecting volume in the Forex market
Volume is affected by many factors, and one of them is the change in market timing, which is of great importance to many traders. For example, when European markets open, Forex trading volume rises sharply, while it decreases in the afternoon. Other factors include:
- Financial information and changes such as inflation strongly influence the value of currency pairs. In addition, international trade figures, surplus or deficit also cause the value to rise or fall.
- Any fresh economic news is seen as a great opportunity to trade and boost the stock price. This is especially true for news that was not expected.
- Traders use technical levels to see buying and selling pressure in the market. Orders are placed along these levels and when prices rise or fall.
How does volume help in trading?
Experts suggest using price action and volume in combination to make informed trading decisions. Price movement or price action is the tool that influences the price decision, and volume supports this funding. The benefits of using volume are as follows:
When buyers take control of the market, accumulation occurs. Therefore, if this volume increases during any downtrend, it is an indication that buyers are taking control of the market and indicates a change in trend. However, if the closing price is higher than the last price when volume increases; if the price does not decline even after volume increases, then a reversal is taking place.
Distribution means that sellers have taken control of the market distribution. In an uptrend, if volume increases, more sellers enter the market and a reversal may occur. If volume persists, a reversal is inevitable. If the closing price falls on the last day, the price does not rise. Even after volume increases, a reversal occurs.
The accumulation and distribution formula is as follows
AD= ((Closing Price-Opening Price)/(High Price-Low Price))*Volume
A falling indicator means that the currency is being distributed, and a rising indicator means that the currency is accumulating.
How to confirm strengths and weaknesses?
The direction of the trend can be determined by lower or higher volume. If the volume is increasing, the price is increasing, which means an uptrend. If the price is decreasing and volume is decreasing, it means a downtrend.
A weak trend is determined by extreme points, but volume does not confirm this and can also indicate the end of a trend.
Establishing a breakout
During a consolidation period, volume is lower. However, when this pattern breaks down, volume rises sharply and shows a breakout.
Market volume shows how traders make informed trades on certain currencies. However, it is impossible to find the correct market volume for the entire market because it is decentralized. Also, since there is no exchange of individual trades, there is no critical data.
Traders can use different tools to determine volume and place profitable trades.