Top
Image Alt

The Investing Box

  /  Cryptocurrency   /  Top 3 Indicators To Better Understand Volume When Trading

Top 3 Indicators To Better Understand Volume When Trading

When it comes to online trading volume, it’s one of the significant measures that affect your future success. Volume indicator analysis is a prominent thing that is used by technical analysis investors. Volume indicators help you to forecast future price changes in the online markets and allow you to guess whether or not the price of an asset is going to increase.

The volume shows how many assets were sold for a certain period of time. As a result, volume indicators are important tools for traders. In this article, we’ll mainly focus on the top 3 volume indicators, including:

● MT4 Default Volume Indicator
● On Balance Volume
● Chaikin Money Flow Indicator

MT4 Default Volume Indicator

MT4 default volume indicator is one of the best indicators for Forex trading. To make things simple to understand let’s take an example of how it works. Imagine that you as a Forex trader are trading with the currency pairs of GBP/USD. You can choose daily, or hourly charts, based on your preferences. With the help of that, you can find the changes of a certain currency value and its volume as well.

On the chart, they are visualized as candlesticks. When you see that the price of GBP increases, as well as the volume, it’s most probable that this trend will continue. This can be seen on the bottom side of the chart. However, while using the MT4 volume indicator – one of the indicators to measure Forex volume, if you notice that the price and volume of GBP decrease, this trend is no longer going to continue. Based on these indicators, you can find whether or not a certain currency is going to strengthen compared to another one.

If you find that a certain currency is going to increase in value, you’ll generate your strategy accordingly so that you can see profits. Even though the MT4 volume indicator is one of the most used among Forex investors, you should keep in mind that none of the indicators can give you a 100% guarantee that your forecast will be successful.

On Balance Volume

On balance volume indicator was introduced by Joseph Granville in his 1963 book Granville’s “New Key To Stock Market Profits”. The OBV is commonly used to measure buying and selling pressure. It plots a line that serves as a running total of volume for an instrument. If a bar closes higher than the previous bars, the closed volume of that bar is added to the OBV. If the close is lower than the previous bars close, the volume for that bar is subtracted from the OBV.

Grandville suggested that volume precedes price, meaning the volume increases in non-trading markets could signal an upcoming move to the upside. Today technical analysts use the OBV to establish trend confirmation, indicate reversal conditions, and provide clues about potential market moves with divergence.

When the OBV continues to meet support and resistance levels, a change in market sentiment may be on the way. Even though divergence is less common in the obv, it still lets traders know that prices could change.

Chaikin Money Flow Indicator

CMF is an indicator developed in the 1980s by Marc Chaikin to track stock buildup and allocation over a certain time period. Even though the Chaikin money flow indicator was invented for stock markets it is frequently used nowadays in the Forex market as well. In order to measure the volume of a certain asset, you need to take three main steps.

The first step involves a money flow multiplier. This means that you are measuring money flow for a certain period of time. In order to find it, first, you need to determine the difference between the close value and the low value.

After that, you need to find the difference between high value and close value divided. Then you look for the differences between the above-mentioned variables and then you divide them by high value minus low value.

The next step is to find the money flow volume. In order to find it, you need to multiply the money flow multiplier by the volume for the period.

And the final step is to calculate the CMF value. You need to use this formula in order to find the final result:

CMF = 21-day Average of the Daily Money Flow / 21-day Average of the Volume

21 is a default number of days for CMF and shows the trading during the last month as the Forex market is open for 5 days a week. Additionally, Traders may use the indicator to construct trend lines on the chart and look for breakouts.

Conclusion

As already mentioned, measuring volume while trading forex is one of the most significant things to do in order to succeed. The above-mentioned indicators are some of the best ones that can be used by investors. These top 3 indicators at first sight might seem complex to use. The easiest one to embrace is the MT4 default volume indicator, which makes the process easier and more sophisticated compared to other volume indicators.

The post Top 3 Indicators To Better Understand Volume When Trading appeared first on SAROS-FOREX.