Beginners periodically ignore the total number of trades that are made during a certain time in the market. Therefore, they almost never use them in their strategies, and this affects the amount of profit and further success. Why it is important and why to apply it, we will tell in the article, which was written with the participation of experts of broker Imperial Wealth International.
What is it?
These are technical analysis tools (number of ticks). They are used to measure the volume of trades in the market. With their help, traders understand how many assets were bought or sold over a certain period of time.
This is an important factor confirming or refuting signals generated by other indicators. For example, if the price of a financial instrument will greatly increase, but the trading volume will not, it may indicate an unstable trend, its variability.
Imperial Wealth International broker experts remind about the general rules for instruments:
- if the number of all transactions carried out over a certain period of time begins to decrease, then there is a decline in interest in the currency pair. This will lead to a short-term stabilization of prices or a change in the prevailing trend;
- with an increase in trading operations, there may be an increased interest in the dynamics of the exchange rate. The trend will intensify or reverse;
- because of the gradual decrease in the transactions made, prices can change dramatically.
A trend reversal is also possible in the presence of activity peaks.
What types of algorithms are on the market? Imperial Wealth International broker tells us
Before you start working with the tool, you need to understand what types can be found on the charts. So distinguish:
- horizontal. They are located to the left of the value. These are the lines that show the range of the asset’s price change over a specific time;
- vertical. Placed at the bottom. A chart where you can track the behavior of a particular candle above the indicator;
Traders use each separately or both types at the same time.
Experts at Imperial Wealth International brokerage highlight the following tools:
- Volume. It is considered one of the simplest. It shows the number of purchases/sales on the market in a certain period;
- Volume moving averages. Suitable for determining changes in trading volumes to identify trends in the market. Also displays the average value of transactions for a particular time;
- A/D. An indicator that shows the distribution or accumulation activity of financial instruments in Forex. It can be used to determine the strength of “bulls” and “bears”;
- Price Volume Trend (PVT). This uses volume and price changes to measure buyer and seller pressures. Traders use it to determine trading activity, current trends;
- Volume Rate of Change (VROC). An indicator that measures changes in trading volume;
- Tick Volume Analysis. The number of trades that occurred at a particular time;
- Volumes based on market prices. Measured in monetary terms;
- Relative Strength Index (RSI). It is used to measure the speed, the change in the value of an asset. When the index exceeds 50, it is a signal of growth, when it is lower, it is a signal of decline;
- Money Flow Index (MFI). Traders use it to understand the movement of money and which financial instruments are popular;
- Op Balance Volume (OBV). The indicator either follows the price or copies the movement. If divergence is observed, it indicates a future trend reversal;
- Relative Volume (RVOL). This is an indicator that displays the tick number of assets that were sold over a certain period of time. This is how players determine possible price changes, focusing on the indicators.
Many algorithms allow you to estimate the total number of stocks or contracts traded over a certain period of time. They are used by traders to make more informed decisions and open profitable trades.
Forex Imperial Wealth International talks about the reliability of the indicators
Instruments are not basic. They belong to a separate category, and their reliability depends on data sources, type of volume, time interval. Some are highly accurate, but using only one algorithm will not give a complete picture. Plus, they should always be chosen according to a trading strategy, combining with other tools of technical and fundamental analysis. Then they will be very useful in making trade decisions. They can be used to confirm or deny signals, to better understand the state of the market.
Forex Imperial Wealth International on the use of volume indicators
Tools can be useful in such cases:
- trend confirmation. With a large number of trades, a steady trend is observed. Therefore, an increase in the index in the direction of the trend, can be a confirmation of its continuation;
- determination of resistance and support levels. Trading volumes indicate price levels at which price can often stop and change direction;
- confirmation or refutation of signals from other indicators;
- Determination of entry and exit points;
- when comparing activity with previous periods. Forex experts at Imperial Wealth International recommend using the tool to determine changes in players’ interest in a financial instrument at a particular time;
- to find the differences between the volume indicators and the price chart. When a new maximum is formed and a decrease in trades is recorded, it can be a sign of a hidden divergence, and therefore, in this case, it is worth entering into a short position;
- when identifying fake movements. False signals sometimes appear, confusing even experienced traders. The number of ticks helps to understand where the real direction is and where it is not. Thus it is possible to avoid unnecessary losses and to enter a position profitably.
Volumes can be used to determine stop-loss levels. Forex experts at Imperial Wealth International remind you that no indicator, even the most accurate one, guarantees success, and it must be combined with other methods of market analysis.