So the question is: How do we go about tying in volume with price action? Tradnig Seven Deadly Sins of Automated Trading. On the initial breakout from a range or other chart pattern, a rise in volume indicates strength in the move. A couple weeks ago, I wrote how volume can assist us in confirming breakouts and when confirming trends. Forex Education: Trading Elliott Wave Diagonals. This indicator WILL NOT work on the Trading Station Web platform.
For this article series, we recommend downloading the Real Volume indicator from FXCMApps. 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. A couple weeks ago, I wrote how volume can assist us in confirming breakouts and when confirming trends.
So today I wanted to expand upon the topic of volume by using it during potential price reversals. Trying to pick when a major price move will reverse is one of the hardest things to do in trading, but volume behaves in a way during a reversal that can give us a heads up on how likely a reversal actually is to occurring. But when trying to identify times where price could reverse, we want to find a decrease in volume.
A decrease in volume signals that the excitement and participation in the pair has fallen, leading to a potential reversal in price. The chart below shows how something like this could play out. On the far left, we see price rallying fairly consistently to a new high, followed by a period of sideways movement where volume trading strategies forex new high was not made for bars.
Technically speakingt hese multiple tops near the same price could have signaled that a reversal was possible on their own, but adding the fact that volume was decreasing during this period of time adds more fuel to the reversal 'fire. Learn Forex: Volume Increases with the Trend, Decreases During Potential Reversal. We can see how price then reversed lower, volume increased confirming the new downtrend directionand traders playing the reversal based on volume came out with a nice winning trade.
Technical traders would read this line as a potential resistance area that could lead to a reversal when price approaches from below. Last week, we saw a 5-day, medium term uptrend lead price to reach this resistance level. Traders could have been on the fence about whether price would bounce or break this level, but traders paying attention to the volume traded during this up-move would have had a sell bias.
This is because volume was decreasing during the move. The decrease in volume has continued early this week as price has stalled, increasing the likelihood that price could return lower. We can choose to enter a sell trade with a tight stop above the previous high price, or we can wait for a large red bar with a larger than normal amount of volume similar to what we looked for when volume trading strategies forex are confirming a breakout using volume.
Volume can help us identify potential reversals and give us more conviction on our trades. As long as we see decreasing volume during a situation where a reversal could occur, we can justify a reversal trade. If you would like to test how real volume can improve your reversal trades, download a Free Forex Demo account today with free charts and real-time pricing data.
Trading Strategies Based on Volume, Part 1: Confirming Breakouts. Volume trading strategies forex Strategies Based on Volume, Part 2: Confirming Trends. Start your Forex trading on the right foot with the Forex Fast-Track Webinar Series. This course is completely free, so sign up or watch on-demand today. DailyFX provides forex news and technical analysis on the trends volume trading strategies forex influence the global currency markets.
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Trading with the Volume Indicator
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