News & Analysis at your fingertips.

We use a range of cookies to give you the best possible browsing experience. By continuing to use this website, you agree to our use of cookies.
You can learn more about our cookie policy here, or by following the link at the bottom of any page on our site.

0

Notifications

Notifications below are based on filters which can be adjusted via Economic and Webinar Calendar pages.

Live Webinar

Live Webinar Events

0

Economic Calendar

Economic Calendar Events

0
Free Trading Guides
Subscribe
Please try again
EUR/USD
Bearish
Oil - US Crude
Mixed
Wall Street
Mixed
Gold
Mixed
GBP/USD
Bearish
USD/JPY
Bullish
More View more
Real Time News
  • Risk management is one of the most important aspects of successful trading, but is often overlooked. What are some basic principles or risk management? Find out from @PaulRobinsonFX here: https://t.co/IsnpfJhp91 https://t.co/UK4E7wD6s8
  • Copper is on track to make a sixth consecutive monthly gain as prices inch towards its all-time high. The global backdrop remains supportive despite a short-term pause in the rally. Get your market update from @FxWestwater here:https://t.co/STEYeIG042 https://t.co/R794ENkS3c
  • Retail trader signals still hint that the Dow Jones and S&P 500 may be at risk, placing the focus on year-long rising trendlines to see if dominant upside biases hold.Get your market update from @ddubrovskyFX here:https://t.co/lFpzIFNmzW https://t.co/FoHTLDJWJe
  • The path for the Japanese Yen seems to favor the downside looking at a majors-based index. USD/JPY may rise within its Ascending Channel, but there is some scope for a healthy correction. Get your market update from @ddubrovskyFX here:https://t.co/7XFJiCYYEM https://t.co/KfLyB2t1jP
  • The British Pound’s recent slip lower against its major counterparts may prove short-lived. Key levels to watch for GBP/USD, GBP/JPY, GBP/CHF and EUR/GBP. Get your $GBP market update from @DanielGMoss here:https://t.co/Y48cF2qi9M https://t.co/ia3Bgq0ZTp
  • Senate Democrats reach deal on jobless aid -BBG
  • The US Dollar faces its next key tests against ASEAN FX following gains in USD/SGD, USD/IDR, USD/PHP and USD/THB. Are the breakouts losing momentum? Get your market update from @ddubrovskyFX here:https://t.co/joPnWIcxEN https://t.co/4QAlUyD98V
  • Heads Up:🇨🇳 National People's Congress due at 00:00 GMT (15min) https://www.dailyfx.com/economic-calendar#2021-03-06
  • Positive vaccine progress, fiscal stimulus hopes and an unperturbed Federal Reserve may open the door for long-term Treasury yields to continue pressing higher, and in turn weigh on gold prices. Get your market update from @DanielGMoss here:https://t.co/TdGhZ82s8r https://t.co/w6YS6Gl11K
  • Forex Update: As of 21:00, these are your best and worst performers based on the London trading schedule: 🇨🇦CAD: 0.07% 🇨🇭CHF: -0.24% 🇳🇿NZD: -0.36% 🇬🇧GBP: -0.41% 🇪🇺EUR: -0.50% 🇦🇺AUD: -0.54% View the performance of all markets via https://www.dailyfx.com/forex-rates#currencies https://t.co/EK7xQumFxO
Trading Strategies Based on Volume, Part 2: Confirming Trends

Trading Strategies Based on Volume, Part 2: Confirming Trends

Rob Pasche, Forex Trading Instructor

Talking Points:

  • Volume can help confirm a trend
  • Volume should increase during moves in the direction of a true trend
  • The EUR/USD is a current example of these principles

For this article series, we recommend downloading the Real Volume indicator from FXCMApps.com. It is completely free. Once installed, we can add Real Volume on our charts just like any other indicator on the Trading Station Desktop. This indicator WILL NOT work on the Trading Station Web platform.

Earlier this week, I published part one of our “Trading Strategies Based on Volume” series showing how volume can do a great job at confirming breakouts. Adding this filter along with a breakout strategy could reduce the amount of false breakouts traded and could increase overall profitability. Today we continue looking at volume but turn our attention towards trading trends.

Trend trading is a staple in my Forex trading account; identifying the predominant direction a pair is heading and only looking for opportunities that trade in the same direction. But sometimes it is difficult to decipher whether a chart displays a trend or not. It can also be difficult to know when a trend has ended and price begins to reverse. The real volume indicator can help us in both of those respects.

Volume’s Appearance During a Trend

Just like we analyze price moves on a chart, we can also analyze volume in a similar manner. Trends are identified as a series of higher highs and higher lows (uptrend) or lower highs and lower lows (downtrend), but volume can show a pattern during a trend as well.

It is common to see volume increase during times where price is moving in the direction of the trend and decrease when price has a countertrend move. The market is showing more enthusiasm as price is moving in the direction of a trend. During times when price pulls back against the trend, volume then decreases as people show a lack of interest. In the chart below, we can see this explanation in a visual format.

Learn Forex: Volume Increases with the Trend, Decreases During Countertrend Moves

Trading Strategies Based on Volume, Part 2: Confirming Trends

(Created using Marketscope 2.0 charting package)

This currency pair is clearly in an uptrend. Price is making higher highs and higher lows and I’ve taken the liberty of drawing arrows on the chart to mark the key moves up and down. Below price we can see real volume and learn how volume looks during an uptrend.

Volume increases each time there is a move in the direction of the trend. And volume decreases each time there is a counter-trend move. This lets us know that the trend is strong and could continue into the foreseeable future.

This chart was somewhat cherry picked to show a very clean example of the relationship between price trends and volume, however. So next I would like to look at a real world example going on right now.

A Current Example – The EUR/USD

Yesterday’s enormous drop in the EUR/USD was hard to miss. The pair fell 200 pips in a single day and FXCM had its largest amount of volume traded on the EURUSD since February 29th, 2012. But before this massive move, volume was playing a role in signaling traders to continue to sell.

The EUR/USD downtrend began back in May when price peaked around 1.4000. Since that point, price has made lower lows and lowers highs with increasing amounts of volume with each leg down. And interestingly enough, when we did see a subtle pullback in the EUR/USD the second half of June, we saw volume decrease.

As we learned earlier, during a trend, volume will increase when price moves in the direction of the trend and volume will decrease when price moves counter to the trend. That is the exact circumstance we find ourselves in with the EUR/USD.

Learn Forex: EUR/USD Trend and Volume

Trading Strategies Based on Volume, Part 2: Confirming Trends

The chart above shows the initial downward move accompanied by increasing volume, followed by rising prices alongside decreasing volume, and then the current downward move we are participating in as volume has increased. This is a classic example of volume signaling the real strength of this trend.

In Conclusion

Volume can greatly enhance our ability to identify and act on a trending currency pair. As long as we see increasing volume during trend moves and decreasing volume during countertrend moves, the trend could continue for a while. If you would like to test how real volume can improve your trend trades, download a Free Forex Demo account today with free charts and real-time pricing data.

Good trading!

---Written by Rob Pasche

Start your Forex trading on the right foot with the Forex Fast-Track Webinar Series. This 4-part, live webinar course is the disciplined Traders’ Fast-Track to the Forex Market. Topics include:

  • Using FXCM’s award-winning trading platform
  • Calculating Leverage and reducing risk
  • Trading with a simple (yet effective) trading strategy
  • Maintaining for Forex account and enrolling in on-going education

This course is completely free, so sign up or watch on-demand today.

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

DISCLOSURES