Volume indicators is a separate group of technical analysis tools reflecting the degree of the investors' activity in the financial market during a particular period. Volume analysis allows to understand what market makers do – buy or sell. They are the primary market driving force, which can reverse any trend in a moment. Therefore, ordinary traders should follow the big players to make favorable deals. Volume indicators help define the mood of the market makers and recognize the trend reversal in time.
Looking for a success in the Forex market, traders must consider a huge number of factors. One of them is demand for a particular asset. This is just as important as the analysis of the price movement, which can be carried out, following the market trend.
Traders use volume indicators for complex technical analysis – it's a completely unique indicator category. Unlike the other filters that operate with price values at different time intervals, the volume indicators analyze the transaction number during a certain period of time. Such data allows more detailed forecasting of the further trend, determination of demand degree, and also adjusting the trading strategy.
What does volume mean in Forex?
Before you start searching for the volume indicator and work with it, you need to find out the essence of the volume in the Forex market. The currency market is a very specific trading platform. It doesn't have a territorial location, and all the operations are conducted online. Therefore, you can't calculate the trade amount in money reliably. This can only be assumed by ascertaining the total number of transactions.
Therefore, if traders talk about the volume of transactions or the volume of trades, they mean exactly the number of transactions made and not the money turnover. Probably, it is another very attractive feature of the currency market for traders – it can't be controlled. The marketplace scale covers the whole world. According to average estimates, the daily turnover reaches $5 billion.
Considering this, you need to understand that the volume indicators will not show the exact amount of money involved in the asset turnover – in fact, you will get the number of transactions for this instrument.
Why should the trading volume be analyzed?
Demand and supply are the pillars, on which any trading platform stands, and Forex isn't an exception. When there is an imbalance between the purchase opportunity and the supply of goods, the price moves and the volume indexes help determine the current market state and respond appropriately.
In particular, due to such trading robots, a trader can determine which asset is currently in demand most of all, then join the game in this direction. However, don't forget that Forex is a decentralized market, which means that it's almost impossible to obtain reliable information on the trading volume, as we have already seen above. The indicator trading robots only compare the trading volumes of a specific asset, in relation to others.
By default, the MT4 terminal contains the tick volume data, so the built-in indicators analyze these indicators. The tick volume displays the number of price fluctuations for the selected period of time. It means the tick is a price jump.
However, you need to understand that you won't know the real volumes due to this indicator, but only the number of the chosen currency price changes. Despite this, you can determine the overall picture of the market trading. The logic is simple: to move the price by at least one point (one tick), there must be a purchase or sale of a certain number of contracts, which is impossible without the money infusion. So you determine the increase or decrease in demand for the asset you are interested in.
How do the volume indicators work?
The volume indicator is displayed on a real graph as a bar histogram that shows the number, or, in fact, the volume of transactions for the chosen period. Trade robots of this type are built into the Metatrader4 terminal, but, in addition, there are volume indicators with a wider functionality than the standard ones. They determine the number of transactions more accurately as well as work with other parameters – it all depends on the type of chosen robot.
Such indicators are created by the programmers along with traders. These programs are installed into the trading terminal and can be used in combination with the originally built-in ones. You can find free volume indicators and download them on the MTDownloads website.
It's quite easy to work with the indicator trading robots. First, you need to choose the time frame for each column – so you could receive information about trade transactions for the selected period of time. The height of each column will vary depending on the number of transactions made for the already selected period. Therefore, the more deals (or ticks and quotation updates) were made, the higher bar is formed.
Modified trading robots that you can download for free on the MTD website work on the same principle, but they have a wider toolset for the technical analysis. You can learn in detail about variations and mechanisms of the indicator trading robots as well as the rules of installation in the trading terminal. All this is available on the MTDownloads website.