Forex volumes, where and how to watch them
Hello, dear readers of the forex blog tradelikeapro.ru. We continue the topic of volume analysis in Forex, or rather an introduction to the VSA technique. Today we’ll talk about the difficulties of determining forex trading volumes, choose the most optimal source of volume information and analyze one extremely interesting indicator 🙂
The importance of volumes
Volumes are important because when analyzing them, we identify the activity of "professional money", which significantly affect the forex market. An imbalance in supply / demand creates price movements; VSA helps determine current market sentiment and follow major players.
Difficulty determining volumes on forex
However, when analyzing volumes in the forex currency market, we encounter some difficulties. The fact is that Forex is decentralized, so it is not possible to get accurate information about trading volumes.
How to be? Where to get information about volumes? We can’t get the exact information, but we don’t need it, because for VSA trading we only need data on the relative volume, i.e. what is it compared to other candles: medium, high or low. And to calculate such relative data, we can use the following sources:
1. Volumes from the futures market
2. Tick volume
Volumes from the futures market
Futures is a contract (agreement) for the sale of an asset in a certain amount and at a certain date in the future at a price agreed today.
Currency futures are traded on the Chicago Mercantile Exchange, abbreviated CME. In general, trading volumes on currency futures give a similar picture to what is happening on the spot market and can be used to analyze the situation on the forex.
Tick volume - the number of price fluctuations over a certain period of time. It is the data on the tick volume that is present by default in the Metatrader 4 terminal. These are not real volumes, but only the number of changes in the currency price. Nevertheless, the data of the tick volume can be used to calculate the relative value of trading volumes. Indeed, in order for the price to move one tick, you need to sell or buy a certain number of contracts, which is impossible without an infusion of money. Therefore, by the size of the tick volume, it is quite possible to judge the real volume.
“Where other volume dataunavailabletick volume may be used. ”
Tom Williams, the founder of the modern VSA methodology.
In addition, the VSA author himself in his book “The Masters of the Markets” clearly and clearly speaks of the possibility of using the tick volume. By the way, in the TradeGuider program, released under his supervision, the tick volume is also used to analyze the forex market.
So how is it better to watch volumes?
There is no single answer to this question. If you look at the screenshot below with indicators of tick volume (top) and volume from the CME exchange (bottom) installed on the same graphs, you will see that when analyzing the relative volume they give approximately the same data. To judge what is the relative volume (high, medium or low), you can use any of these indicators. Therefore, just apply what is closer and more convenient to you.
(image enlarges by click)
Description of Better Volume Indicator Signals
Better Volume, an improved indicator of tick volume, automatically estimates the current volume and spread of a candle, comparing them with previous values, and gives us a kind of signals indicating the presence of a large / small volume and the size of the spread. Here is a list of color signals that appear on the Better Volume histogram.
Red color - means the presence of a large volume and wide spread on the up-bar. Appears at the beginning and at the end of uptrends, as well as on corrections during a downtrend.
White color - means a large volume and a wide spread at the down bar. Appears at the beginning and at the end of bearish trends, as well as on corrections during an uptrend.
Yellow- means a small volume. Appears at the end of trends, as well as during corrections.
Green color - indicates the presence of a bar with a small spread and significant volume. Appears at the end of trends (the transfer of assets from market makers to simple traders) and while taking profits in the middle of trends.
Download Volume Indicators
(indicators are installed according to standard instructions)
P.S. Since September 2013, the Cluster Volume indicator requires activation to work. Details on the link.