How do some traders seem to acknowledge legitimate price movements versus fakeouts?
Can they really see into the long run?
Is a few form of blood sacrifice required?
Don’t worry—no black magic obligatory!
Experienced traders often use techniques like volume evaluation to assist make informed decisions.
It’s no secret, then, that learning about it may possibly greatly boost your trading success!
At first, Volume may seem to be a pointless addition to the chart…
Nonetheless!
…if used appropriately, it may possibly help provide you with the additional confirmation it is advisable to take trades with confidence.
I wrote this guide to clarify exactly what volume evaluation is as simply as possible.
With a little bit of focus, I’m sure you’ll see how it may possibly be extremely helpful to your trading!
In this text, you’ll dive into key elements corresponding to:
- What’s Volume Evaluation?
- Learn how to add Volume to your Tradingview chart
- The difference between green and red bars
- Some differences for volume in Forex vs. Stocks
- How volume is often used with some practical examples
- The constraints of volume evaluation
Ready to boost your trading strategy?
Let’s begin!
What’s Volume Evaluation?
So, what’s Volume evaluation?
Mainly, volume evaluation is a trading method that appears on the variety of shares traded over a certain time.
The information you get from it may possibly assist you in figuring out the strength of price movements.
By taking a look at how much of an asset is being traded, traders can find out about market sentiment.
Volume evaluation helps confirm trends, discover potential reversals, and validate breakouts by revealing buying or selling pressure.
As an example, a price rise on high volume indicates strong buying interest, which suggests the trend is more likely to proceed.
Then again, a price increase on low volume… might not be as reliable!
Volume might be used on all assets; nonetheless, there are some differences, which I’ll highlight afterward in this text.
Where to Find It
Let’s take a look at where you will discover essentially the most common Volume indicator on Trading View.
- Navigate to your Trading View screen and choose any chart.
- At the highest of the chart, you will note the Indicators tab…
Click on the Indicators tab and it is going to bring you to a window where you possibly can search for various indicators.
3. Seek for Volume Indicator…
Within the search window, type “Volume” and choose the Volume Indicator as shown in the instance.
4. View the Volume data in your chart
Once chosen, the window will close, and your chart will display the Volume Indicator at the underside, much like the instance below…
Volume data might be found on virtually all trading platforms and financial web sites, the situation just relies on what you’re using.
So, volume is displayed in long bars at the underside of the chart – see the red and green bars?
The peak of every bar represents the quantity traded during that period.
For this instance, it represents the quantity traded for every 4-hour candle period on the NZD/USD 4-hour chart.
Now that you understand where to search out it, let’s take a look at what it’s attempting to let you know!
What Volume Represents
Volume shows the variety of shares or contracts traded during a certain time-frame.
High volume means increased trading activity and interest within the asset, often with major price movements.
Low volume suggests an absence of interest and might signal weak price movements or consolidation periods.
The fundamental goal of volume evaluation is to indicate the strength or weakness of price movements and provide help to make higher decisions.
It is usually used as confirmation fairly than the entry trigger itself.
Do not forget that many aspects can affect volume, and I’ll explain more about this later in this text.
So, you may be asking, why are a few of the bars red and a few green?
Let’s have a look.
Green Bars vs. Red Bars
Often, traders mistake the red and green colours as indicators of the quantity itself.
Nonetheless, they simply show whether the value moved up or down during that period.
If the value increases from the previous candlestick, the quantity bar shall be green.
If the value decreases from the previous candlestick, it is going to be red.
These colours often have an excessive amount of influence on traders’ decisions when, actually, it’s the peak and difference in volume bars which can be more vital!
Before taking a look at the small print on use volume for charting, there may be one major piece of data it is advisable to know.
It’s vital to do not forget that there may be a difference between volume for Forex vs. Stocks
And in reality, volume has at all times been considered rather more priceless for stocks…
Here is why.
Difference in Volume for Forex vs. Stocks
Volume evaluation differs between the forex and stock markets due to the way in which they’re structured.
Stocks trade on centralized exchanges just like the NYSE or NASDAQ, where volume data is transparent and simply accessible.
In contrast, the forex market is decentralized, with volume data being broker-dependent.
It means the quantity data in forex markets won’t be completely reliable when occupied with the market as a complete.
Despite this, volume evaluation stays priceless in foreign currency trading, as most large forex brokers report similar volume data, reflecting overall market sentiment.
One point, though, is that analyzing volume on lower timeframes in forex can present recent challenges.
While it may possibly give insights into intraday trading activity and help discover potential trading opportunities, it’s vital to notice the influence of trading sessions in overlapping time zones.
Take a take a look at this chart below…
GBP/JPY 15 Minute Chart Trading Sessions:
The blue zone indicates the Asia session, while yellow represents Europe, and green signifies America.
You’ll be able to see where the Europe and America sessions overlap, leading to increased volume, which isn’t necessarily priceless during evaluation.
So with the fundamentals in place, let’s put volume evaluation into practice, helping you employ it for trading confirmation and decisions!
How is Volume Typically Used?
You now know why volume is used and where to search out it in Tradingview.
But how will you use it when taking a look at a chart?
Never Utilized in Isolation – Use with a Strategy as Confirmation
It’s best to make use of volume evaluation together with other technical indicators and chart patterns fairly than by itself.
It should function a confirmation tool to your trading signals and methods.
As an example, when a technical indicator suggests a possible trade, volume evaluation can confirm the strength of that signal by showing the extent of market participation.
A high volume combined with a signal could mean strong market interest, making a successful trade more likely.
The Average Volume Across an Area of Interest
A mistake I often see traders make is taking a look at the quantity of every session individually fairly than taking a holistic approach.
I prefer to take a look at the typical volume over a selected period to know the standard trading activity for a security.
A sudden spike in volume above the typical can signal an upcoming significant move.
For instance, if a stock’s average volume is fairly flat but then, for some reason, just a few volume bars begin to indicate increased volume at an area of value, you may start paying closer attention and construct up a case for entering the stock.
Trend Continuation Confirmation
Volume evaluation can confirm trend continuation.
In an uptrend, increasing volume as the value rises indicates strong buying interest, suggesting the trend is more likely to proceed.
As chances are you’ll see on price charts, too, when price is in an uptrend, it often has small, minor pullbacks.
If the moves upward have strong volume, while the small retracements have lower volume, it might mean that the pullbacks are weak and the uptrend is robust enough to proceed.
Candlestick Volume Confirmation
So should you’ve followed me for a while, you understand I like my candlestick patterns!
Well, volume can add an additional layer to them.
For instance, a bullish engulfing pattern that happens on high volume suggests a powerful reversal signal, because it indicates significant buying interest.
Volume confirmation of candlestick patterns would add extra strength to your evaluation, helping you make more accurate predictions about future price movements.
Breakout Confirmation
Breakouts aren’t any exception when taking a look at volume, either.
Breakouts are critical points where the value moves above or below resistance or support levels.
High volume during a breakout can confirm the breakout is real, because it shows strong market participation and increases the likelihood of a sustained price movement.
Nonetheless, if the value breaks out of a variety on low volume, it suggests weak market interest and the next risk of it becoming a false breakout.
By analyzing volume during breakouts, traders can work out which breakouts are real or false, which improves the effectiveness of their trading strategies.
Now that you understand use Volume, let’s take a look at some real-life examples!
Trading Examples
Let’s take a take a look at some actual trading examples to offer you a greater understanding of how you should utilize volume to make higher trading decisions.
Try this chart…
NZD/USD 4-Hour Chart:
Here, you possibly can see an area of value where price previously acted as resistance and is now support.
Price broke through the resistance level, forming a much higher high, eventually peaking and reversing back all the way down to the resistance level, which now looks to be acting as support.
Notice the quantity increase on the move down…
NZD/USD 4-Hour Chart Low Volume:
You may be pondering, “Great! Price is at a support level, let’s take the buy!”
Nonetheless, are you able to see something interesting occurring at the realm of value?
Price is rejecting the zone, but it surely’s at low volume…
…and the one volume increase during this era was from the big bearish candle after the small bounce.
This might mean that there will not be a whole lot of volume with the bulls attempting to hold this support level…
NZD/USD 4-Hour Chart Increase Volume:
The worth eventually breaks the support level as expected, and take a look at what happened with the quantity throughout the break!
Volume increased as support fell!
This shows how volume increases can reveal which moves have some real momentum behind them, in comparison with the remainder of the candlesticks.
Let’s take a take a look at what happens next…
NZD/USD 4-Hour Chart Price Continuation:
Price continues its strong momentum to the downside, giving a good opportunity to take a brief trade.
Before happening, the vital thing to notice here is discover whether the support is more likely to hold or not, because it could prevent you from taking an extended trade at support.
Let’s take a look at one other example – this time with a stock…
META Every day Chart:
Here you possibly can see the stock Meta has been in an uptrend.
While the value has now formed a little bit of consolidation, volume has also evened out and is remaining relatively low.
An area of value has formed with a support level…
META Every day Chart Support Level:
Price comes back to the support level again, and a few key notes to discover are the candlestick pattern and the quantity…
See how the hammer has formed at support, which is a bullish candlestick pattern?
Despite the fact that it’s a red volume bar and a red candlestick, as discussed earlier, the colour of the quantity will not be so vital.
What this setup is telling you, is that bears tried to bring the value under the support level but did not achieve this, and this time on high volume.
This implies there may be enough volume on the buying side to carry this support level.
Are you able to see how this differs from the previous example, where support volume was weak?…
META Every day Chart Uptrend Continuation:
From that time on, the value moves back into its uptrend.
In this fashion, the quantity and candlestick pattern gave you the knowledge you needed to CONFIRM the buy entry, fairly than making it the only reason to purchase.
The worth got here to an area of value, and there was a bullish candlestick on high volume.
Should you already owned Meta stock, this could possibly be an amazing way of knowing whether or not it was price holding it or exiting your position.
Or, should you were trying to enter a recent position, you’ll have an amazing consolidation period, with strong entry signals using the technical evaluation of support and candlestick patterns, combined with the confirmation from volume.
So with all that said, let’s take a vital take a look at how volume can sometimes be misleading…
Microsoft Every day Chart:
Here is an identical example to the previous one, where the stock Microsoft has formed a support level after a good uptrend.
The worth has come back to the support level, and something interesting is happening.
A hammer candlestick has formed at support, together with a rise in volume…
Similarly to the last time, there’s reason to imagine this level will hold!
Let’s take a take a look at what happens…
Microsoft Every day Chart Support Breaks:
Although the value initially bounced, which remains to be helpful information, it ultimately grinded its way below the extent.
On the chart, I’ve highlighted the areas where support begins to fail.
So that you may be asking:
“OK, why did this occur, Rayner?”
It’s a great query, and the honest answer is…
…sometimes volume doesn’t give the entire picture!
This support tried to carry, and you possibly can see multiple bounces from it after the quantity spike, but eventually, as the value got here back to the support level time and time again, the buyers were exhausted.
Remember, the good thing about this evaluation is that it still gives you loads of time to exit your position.
Ultimately, the value didn’t proceed in an uptrend, but it surely held the support long enough so that you can reevaluate whether or not the extent would hold the second, third, and even fourth time.
There may be one other thing you may need to contemplate when taking a look at stocks.
Take a take a look at the next chart…
Microsoft Every day Chart Earnings Report:
Clearly, dividends and earnings are key aspects in price movements for stocks…
…but in addition they influence volume!
Just by taking a look at the chart, it’s hard to say whether or not this earnings report was negative or positive, but it surely could have played a task in whether or not the value continued in an uptrend.
It’s an amazing example of volume evaluation limitations, but let’s take a take a look at some more.
Limitations
Only Useful as Confirmation – Not a Signal in Itself
Volume data can definitely help confirm trends, breakouts, and other signals generated by other technical evaluation.
Nonetheless, relying solely on volume might be misleading, because it won’t provide clear entry or exit points without the context of other indicators like moving averages, trend lines or support and resistance.
For instance, a price move with high volume suggests strength, while the identical move with low volume may be a false signal.
Can Grow to be Confusing
Volume evaluation might be confusing, especially in markets with high volatility or low liquidity.
Sudden spikes or drops in volume might be misinterpreted, resulting in incorrect conclusions about market direction.
Moreover, algorithmic and high-frequency trading (HFT) has modified traditional volume patterns, making it harder to know volume data accurately.
HFT may cause large volume spikes that don’t necessarily reflect meaningful market sentiment, complicating the evaluation further, so keep an eye fixed out.
Lack of a Comprehensive Market View
When considering Foreign currency trading, for instance, volume data often represents only a portion of the whole market activity.
This may make volume accuracy inconsistent and hard to depend on.
Moreover, news events can greatly affect volume.
High-impact news may cause volume spikes which can be more of a knee-jerk response than a real market confirmation.
While volume is helpful for confirming breakouts and trend continuations, it’s vital to be cautious during news events, as these can disrupt normal volume patterns.
Conclusion
Clearly, volume evaluation is usually a priceless tool to higher understand market dynamics and make sure your trading signals.
By including volume data together with your trading strategy, you possibly can gain crucial insights into the strength of price movements and market sentiment.
When used alongside other tools, volume evaluation can provide you with an edge in predicting market trends and validating breakouts or reversals.
To summarize, in this text, you’ve:
- Learned what volume evaluation is and where to search out volume data
- Discussed what volume represents
- Explored the differences in volume for Forex vs. Stocks
- Understood the three major ways volume is utilized in markets
- Reviewed chart examples of volume confirmation for trend continuation and breakouts.
- Identified the restrictions of volume evaluation, including its dependency on context and potential for confusion.
By mastering volume evaluation and integrating it together with your other technical evaluation tools, you’re well in your solution to becoming a more informed and effective trader.
Now, I’m very desirous to hear your thoughts on volume evaluation!
Do you currently use volume evaluation in your trading?
Are you able to see why it’s a critical component of technical evaluation?
How much success have you ever had with it?
Share your thoughts and experiences within the comments below!