What is volume and what are its benefits?

Trading by Volume: Forex, Cryptocurrencies, and Stock Markets

 

If you’re reading this, you already understand that volume is a key aspect of trading in financial markets. However, if you’re just beginning to explore this topic, now is the perfect time to learn how this tool can become an essential part of your trading strategy. In this article, we’ll delve into trading by volume on Forex, cryptocurrency, and stock markets, exploring their specifics and nuances.

Volume in Financial Markets: The Basis of Analysis

 

Volume is one of the core principles of VSA (Volume Spread Analysis). It allows traders to evaluate market participant activity, identify key levels, and predict potential price movements. Before diving into practice, it’s essential to understand that volume comes in two types:

1.Tick Volume — Reflects the number of trades within a specific period, regardless of their size.

2.True Volume — Represents the actual monetary value traded and is only available on exchange markets like stock or futures markets.

What Is Volume in Forex?

 

In the Forex market, only tick volume is available because it is a decentralized market with no centralized exchange. Tick volume shows the number of price changes during a given period. While it helps traders assess market activity, the actual trade sizes remain invisible.

 

Example

Imagine ten traders operating on the Forex market. Nine of them make trades worth €100 each, and one trader places a trade worth €900. If this trader closes their position, one large sell order and several buy orders are created. However, the tick volume will only reflect the number of trades, not their sizes. This demonstrates that tick volume captures activity but not the actual trade size.

 

In Forex, 95% of participants are retail traders, while the remaining 5% are large players. These major participants shape market movements using their assets to create the conditions they need. Understanding volume allows traders to detect professional and institutional activities, giving a significant advantage in trading.

 

Using Volume in Forex

•Volume analysis helps identify areas of high interest among participants (support and resistance levels).

•Volume indicators can pinpoint peaks in activity, often signaling potential trend reversals.

•Traders use platforms like MetaTrader to analyze tick volumes and complement them with other tools such as MACD or RSI.

Volume in Cryptocurrency Markets

 

Cryptocurrency markets provide access to both tick and true volume data. Unlike Forex, cryptocurrency exchanges (e.g., Binance, Coinbase, Kraken) offer comprehensive trade information, including trade sizes and counts.

 

Features of Volume in Cryptocurrencies

1.Transparency. Exchanges provide access to real volume data, enabling traders to analyze the behavior of large participants.\n2. High Volatility. Volume surges in the crypto market are often linked to large orders, signaling potential manipulation or the beginning of trends.\n3. Analysis Tools. Platforms like Binance allow monitoring of volumes and open orders via order books, helping assess supply and demand.

 

How to Use Volume in Crypto Markets

•Monitor volume surges at support and resistance levels, as they often precede significant price movements.

•Use volume data to gauge market sentiment (e.g., dominance of buying or selling activity).

•Combine volume analysis with chart patterns like “head and shoulders” or “triangles” for signal confirmation.

Volume in Stock Markets

 

In the stock market, volume is an integral part of trading. It represents the actual monetary flow and helps evaluate investor interest in specific assets.

 

Features of Volume in Stock Markets

1.True Volume. Stock exchanges like NYSE or NASDAQ provide precise data on trade sizes and counts.\n2. Liquidity Relationship. High volumes typically indicate asset liquidity, making entry and exit easier.\n3. Role in Trend Reversals. Volume spikes often precede major market shifts, indicating institutional participation.

 

Using Volume in Stock Markets

•Use volume to confirm trends: if volume increases alongside price, the trend is considered strong.

•Analyze volume to gauge interest in stocks or ETFs.

•Volume data helps identify consolidation zones where major players accumulate or distribute positions.

Advantages of Trading by Volume

1.Understanding Market Sentiment. Volume shows where key market actions are concentrated.\n2. Identifying Activity Levels. Volume analysis highlights key support and resistance levels.\n3. Enhancing Signal Accuracy. Combining volume with indicators and chart patterns improves predictions.

 

Disadvantages of Trading by Volume

1.Limitations in Forex. The lack of true volume data complicates analysis.\n2. Interpretation Challenges. Novices may struggle to correctly interpret volume surges.\n3. Manipulation in Crypto Markets. On low-liquidity markets, large players may deliberately distort volume data.

Conclusion

 

Trading by volume is a powerful tool that helps traders detect large participant activities and make more informed decisions. Whether you’re trading Forex, cryptocurrencies, or stocks, understanding volume can significantly enhance your strategy. However, each market has its own unique characteristics, and it’s crucial to account for them during analysis.

 

Dive deeper into the topic of volume, use appropriate platforms and tools for analysis, and elevate your trading to the next level!