Volume indicators are crucial technical analysis tools. They offer insights into the movement of a price. They also provide traders with the required arsenal to understand trading activities, predict market trends, and analyze market sentiment. Ready to unlock these strategies? Read the article!
What is a trading volume?
In financial market analysis, trading volume plays a vital role as it reflects the balance between demand and supply.
A high trading volume indicates a strong inclination towards buying and selling among investors. Stocks, currencies, or bonds are traded in significant demand. Low trading volume suggests a lack of interest in the market and may indicate minimal price fluctuations.
Here are the seven ways you can employ trading volume indicators to your benefit:
- Use trading volume to measure trend strength
The Volume Indicator available in both MetaTrader 4 and 5 serves as a reliable tool for gauging the strength of a trend. It can validate an uptrend when the price moves up accompanied by a rise in trading volume. Similarly, it can verify a downtrend when the price moves down with an increase in trading volume.
This valuable data can help traders in making informed decisions regarding buying or selling and identify the best entry and exit points in the market.
- Use trading volume to identify critical points
When the trading volume goes up significantly in a specific direction, it can signify that the trend is confirmed. On the other hand, if the trading volume drops significantly while the price moves in a particular direction, it may suggest that the trend is losing its strength.
Trading volume indicates the change in the trend.
- Use trading volume to determine support and resistance levels
When the trading volume surges as the price approaches a specific level, it suggests robust support for that level. Conversely, when the trading volume plummets as the price moves towards a certain level, it may indicate a sturdy resistance at that level.
Price gets down but doesn’t break the support level – and trading volume proves it.
Price has risen but doesn’t break out – trading volume data is red.
- Use trading volume to confirm reversals
Trading volume indicators can be used to determine the probability of a change in price direction. If trading volume increases significantly in a certain direction, it may indicate the likelihood of a reversal in the opposite direction. This information can be used to make buying and selling decisions.
Each volume peak is a trend change.
- Use trading volume to analyze breakouts
Trading volume indicators can be used to determine when a certain level is being penetrated and whether the breakout is strong or not. If trading volume increases significantly during a breakout, it may indicate the strength of the breakout. This information can be used to make buying and selling decisions.
The price breaks the support, and the volume data is green – the trend becomes downward.
- Use trading volume to analyze oscillation
Trading volume indicators can be used to analyze oscillation in prices. If trading volume increases significantly and fluctuates within a specified time period, it may indicate an oscillation in prices, and this information can be used to make buying and selling decisions.
Is it a strong downward trend? Trading volume data shows the real market situation.
- Use trading volume to analyze long-term trends
If trading volume increases significantly with a certain trend, it may indicate a strong long-term trend, and this information can be used to make buying and selling decisions on a long-term basis.
The trend in trading volume is mirrored by the market. It is a long-term strong trend.