All Financial Wisdom

Forex Trading: The Big Downside of Volume and How to Make It Up

By  | 

When it comes to trading in the financial markets in general, the volume indicator is one of the most powerful signals that any trader can count on to make buying or selling decisions in the market.

Market impulses supported by volume increases are always an extraordinary indicator of the commitment of the market members in the direction that the price is moving.

But in the specific case of Forex trading, the characteristics of this market make the indicator of the volume not completely reliable, or at least not as accurate as it can be when trading in stocks or futures.

Why is Forex volume not a sure indicator?

It should be remembered that the Forex market is a decentralized market that can be accessed from almost any corner of the world, which ends up affecting a lack of precision in the volume data that different charts provide.

Thus, if we intend to support our trade decisions with the volume information presented to us at any given moment, we must always keep in mind that we are working with data from an distributed market. Volume is a reflection of several different markets and will necessarily differ.

How can I complete the volume information in Forex?

For traders who are accustomed to using the volume in their daily trades, the inconvenience of not having accurate data be annoying at best and dangerous at worst. However, there are some solutions to make up for this lack of information:

  • Have a parallel chart opener with currency pair futures. Futures markets are a centralized market, and generally all markets follow a parallel movement with minimal differences. That is, the readings we can make in the future of the EUR/USD for example,  will not give us absolutely precise information regarding Forex pairs, but it will provide us with the main trend of the market at any given time. This measure is especially practical for intraday operators, and personally I consider it very useful.
  • View the information of open positions directly in the Forex market that some brokers provide depending on the information of their own clients. For example, in this chart, we can see how many short (or long) trades are open in the EUR/USD, thus showing that the market sentiment for the EUR/USD, remains bearish.
  • Finally, the information that the regulator of the futures markets in the United States, the CFTC, in what is known as the Commitment of Traders reports, can be consulted , which informs us about open positions on all the derivatives, giving us important information on the general market sentiment.

Leave a Reply

Your email address will not be published. Required fields are marked *