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Volume Indicators: Looking for the Big Breakout
Not all traders are full-time. Some people trade for fun, others trade for profit, and most who take trading seriously rely heavily on indicators for forecasting. First-year traders often overlook volume, but this could be a big mistake. Here’s a look at the power of volume indicators and how to use them when looking for a symbol to trade.
Trading volume
For online traders navigating the volatile markets of today, trading a pair that has increased volume offers a certain amount of stability. If there are many traders, then one large investor will have less effect on the price. This means less volatility or smoother movements.
Changes in volume and prices can be very unpredictable, and affect the less popular instruments such as minor pairs much more. The most influential, of course, are the central banks, big corporations, investment managers, and hedge funds. The interbank market accounts for the highest volume of trading. Only 10% of the $5.1 trillion in daily transactions is done by retail traders.
Forex offers a higher level of liquidity than any other market. High liquidity means traders have a better chance of hitting their trading goals within 24 hours. It also means an order can get stopped out quickly too, so be cautious. The effects of liquidity, rather like the weather, can be unpredictable and hard to forecast. Fortunately, there are some trading tips and tricks.
The right pair
Sticking to the major currency pairs is a simple way to avoid low liquidity. The main four are:
- EURUSD (euro and US dollar)
- USDJPY (US dollar and Japanese yen)
- GBPUSD (British pound and US dollar)
- USDCHF (US dollar and Swiss franc)
Exness offers over 100 currency pairs to trade with, but the 4 majors above account for almost half of all trading volume worldwide.
Use volume indicators to time your orders
Combining trends and volume can be a very effective way to confirm that an apparent price movement is not just a temporary shift. Positive news releases and economic events can cause an influx of demand. More buy orders occur, so volume goes up… and sometimes so does the price.
Prices can move independently from volume, but this might not indicate good trading conditions. What you’re looking for is a modest price increase, even though a volume indicator shows a large volume increase. If you see a huge volume increase and only a small price rise, it may be a sign that the price shift is not just a false breakout. With huge volume, there can be the potential to go much higher. The pair likely deserves your full attention and perhaps deeper analysis.
Catching trends just after they start is the goal of every trader, and tracking volume can help. Nevertheless, FX News still recommends you stick to a risk management strategy. Just remember that trading always involves speculation and risk, no matter how good the indicators are. Be conservative from the start. Build your portfolio slowly, and make trading a long-term venture. Enjoy, and remember, trading offers the potential for entertainment as well as profit.
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