Real volume indicators for forex traders
Some believe that most technical indicators are similar in that they are derived from the same thing: price. Volume, however, is a unique and separate appraisal of the market that can meaningfully improve our analysis of the market or individual trade opportunities.
In today's strategy video, John Kicklighter, Chief Strategist for DailyFX, discusses how this information can be used to give us greater insight into broader market conditions as well as shape more distinct trade setups - with a reference to risk trends, the S&P 500, EUR/USD, GBP/USD, USD/JPY and others.
Talking Points:
- The FX market is decentralized, meaning there is no market-wide volume measures
- However, Real Volume and Transaction indicators can give a good measure of speculative activity
- We can use volume as both an overview analysis technique and as an individual trade filter
Thank you Rogers for this post, I saw a site with with your helpful posts, and the one above was there. I also appreciate this post from that link:
"To further clarify, the Real Volume indicator shows the total volume of live trades during a specified period. Total volume is calculated from the sum of individual transactions. For example:
Client A buys 10K EUR/USD, sells 10K EUR/USD = 20,000 in volume
Client B buys 10K EUR/USD, buys 20K EUR/USD = 30,000 in volume
Total Real Volume = 50,000"
Very clear explanation!
How do you claim to know the 'real volume' in forex when it is clearly an OTC market and no central clearing exchange? Looks more like a marketing gimmick than anything else. No really, prove how you claim to see the real volume in forex.
Traders outside the foreign exchange market would well recognize the golden relevance of volume when he is to arrive at business decisions. It therefore becomes sad that forex traders are becoming to abandon the value of volume probably because it is becoming increasingly difficult to come across. Yet volume analysis is powerful as a good real volume indicator can make good meaning on the quantity of trading volume the major currency pairs are experiencing at a time. Volume could help you reliably identify breakouts.
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This thread will focus on how Real Volume and Transactions indicators can be used for trading in the forex market.
Real Volume and Transactions indicators used to be hard to come by for forex traders. Previously, we had to make do with approximations such as tick volume which, while useful, only tell part of the story. As you can see from a 1-minute chart below of the recent ECB announcement there's definitely a correlation between Real Volume (top), Tick Volume (middle) and Transactions Volume (bottom).
However, there are notable differences when there is a large spike in real trading volume. This reveals a limitation with tick volume in that it has no way of showing when a large amount of volume trades at a single price, since that would only be counted as a single tick. Real Volume and Transactions indicators can thus provide new perspectives on what traders are doing during major news events, especially since they work even on 1-minute charts.
To summarize:
While each of them can be valuable in its own way, this discussion will focus on Real Volume and Transaction indicators, since this information is new in retail forex.