3 More Trades With Volume

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3 Ways to Improve a Strategy Using Real Trading Volume

  • Using volume to confirm breakouts
  • Using volume to confirm trends
  • Using volume to identify reversals

For traders coming from other markets, you know the importance volume has when making trading decisions. But for years, volume has been more or less rejected by Forex traders because it has been so hard to come by. There is no central exchange for currency transactions, so there is no perfect way to measure the amount of volume actually being traded.

But with FXCM’s Real Volume indicator, we can now get a sense of the amount of trading volume that is occurring on all major pairs. This is great for Forex traders, because we can now add volume analysis to our trading arsenal. In this article, we will learn 3 ways we can use volume in 3 different types of trading situations.

Volume Can Confirm Breakouts

One of the greatest fears for breakout traders is encountering a false breakout. This is when price breaks a major support or resistance level, but then crosses back to its original side. To mitigate falling for a false break, traders often wait until the current candle actually closes beyond the support or resistance level before placing a trade. This is a good technique. But another way we can confirm a breakout is by using volume.

During a breakout, it is common to see a spike in volume. An increase in volume represents a larger amount of participants that “agree” with the breakout that is occurring and can actually act as confirmation that price could continue to move in the direction of the breakout.

For an in-depth discussion on using volume to confirm breakouts, I recommend reading my previous article . But for a quick example, I have copied the chart we see below.

Learn Forex: Volume Steady During False Breaks, Spikes During Real Breaks

(Created using Marketscope 2.0 charting package )

The 3 horizontal lines represent support and resistance levels that have been drawn based on swing highs and swing lows, and the red and green boxes represent times when price broke through those levels. However, not all of these breakouts had price follow through. Some of them were false breakouts. We can see that the two breakouts that could have resulted in great breakout trades, occurred when volume was dramatically higher than the candles around them. If we only trade breakouts when volume is elevated, this could increase our likelihood of finding better opportunities.

Volume Can Confirm Trends

Our next use for volume is valuable for traders that trade trend strategies. I already mentioned earlier how an increase of volume means there are a greater number of market participants in agreement about the price movement it coincides with. The same applies when market begins trending in a primary direction.

During a strong trend, we commonly see volume increase when price is moving in the direction of the trend, and volume decrease when price is moving counter to the trend. When this occurs, it can act as a signal to traders that the trend is more likely to continue. The greater the disparity in volume during trend and countertrend moves, the stronger the trend.

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In a previous article , I go more in depth into looking for these opportunities and I’ve pictured one of these opportunities below.

Learn Forex: Volume Increasing with Trend, Decreasing When Countertrend

We can see that each time price is moving up (in the direction of the trend), volume is increasing, and when price is moving down (countertrend), volume is decreasing. If we find this on our own charts, we should feel more confident placing trades that are in the direction of the trend until we see increased volume during a countertrend move (or breakout).

Volume Can Identify Reversals

The final situation when volume can be helpful is during potential reversals. Playing off the previous chart when we had a strong trend, trends will not last forever. At some point, trends will always reverse. But timing a reversal can be very difficult and very costly when we are wrong. The way that volume can be used to assist us in identifying reversals, is by looking for times when volume is decreasing at the same time that the trend is beginning to stall.

Learn Forex: Volume Decreases While Priced Tested Resistance, Then Reversed

In the chart above, we see an uptrend in a stalling pattern where price is not able to break to a new high. During this sideways movement, volume begins to dip lower and lower which could indicate that traders are uncertain that the uptrend will continue. As soon as we see price break to a new swing low, we see volume sky rocket, confirming the reversal. For more information on using volume to identify reversals, click here .

—Written by Rob Pasche

Interested in learning more about Forex trading and strategy development? Signup for a series of free guides, to help you get up to speed on a variety of trading topics! Register HERE.

Analytical VSA Trader – Trading with Volume Spread Analysis

Hello, Analytical VSA Trader is an indicator based in volume spread analysis, for Metatrader 4. What makes it different from other VSA indicators is that Analytical actually gives accurate signals, and very rarely mixed signals like other packages. It also doesn’t in any way redraw any of the signals and background it generates.

Who am I?
I’m Leonardo, a trader trading the stock market and forex markets for 7 years using VSA. These are my real trading results in a TRACKED myfxbook live account.

So what is VSA (Volume spread analysis) all about?

Volume Spread Analysis is a proven methodology of analyzing financial markets. First developed by Richard D. Wyckoff, one of the most successful Wall Street traders of all time, in the 1900s, and perfected by Tom Williams, during the time he was a syndicate trader for 15 years based in London in the 1960s-1970s. Other very successful Wall Street traders like William O’Neill use it as well. It’s based on supply and demand, which governs any market, and not anything else: no technical indicators, no price patterns, just pure price and volume action.
Any business where there is money to be made there are professionals: Art has professional traders, poker has professional players, betting has professional betters, and likewise financial markets have professional traders. Being successful in the markets is all about following the footsteps of the ‘sharks’ of this game: market operators, pit traders, market-makers, syndicate traders and top professional traders. The purpose of VSA is to show you what the professionals are doing by analyzing the price movements and volumes, and profit with that knowledge!
Let’s see some examples: in the gold top in September/2020, there was major supply – the strong holders (professionals) dumped their gold futures stock on the weak holders (the public), and it is visible by high volume and sluggish price increase, typical of a distribution.

In the 2008 top of the American stock market, there was also distribution and lack of demand at higher prices right before the bear market started.

The principle applies to any market in any timeframe, and you see the same exact setups. In forex, you can use tick volumes, since it also measures equally well the market activity.

  1. Fully automatic and complete VSA analysis
  2. Accurate bar-by-bar analysis, in multiple timeframes
  3. Background scanner
  4. Applicable to any market in any timeframe
  5. Very simple to use
  6. Metatrader alerts, email and push notifications
  7. Strictly non-repainting indicator

Indicator features in detail

  1. Every supply, demand, or lack of supply/demand bar is marked with a specific color. Analytical Trader automatically scans the current timeframe and the two timeframes above the current one for these signals, and marks everything it finds in the current chart, so you get a multi-timeframe analysis in just one chart.
    These will point out market reversals with an accuracy rate of 75-80%.
  2. The background analyzes the trend and VSA signals, and tells you the consensus of opinion of institutional traders and professionals. This basically will tell you in which side of the market should you be: you never want to trade against the smart money! The background will also tell you the weight you should give to the demand or supply signals the market is generating.
  1. Is VSA suitable for traders who haven’t even heard of Volume Spread Analysis (VSA)?
    Of course! The indicator marks all the important bars, computes the background automatically, so you don’t have to worry about how it’s done.
  2. How can Analytical Trader help VSA traders?
    It accerelates VSA learning: if there is a VSA bar, this indicador will draw it. By marking every important bar, and telling you how the background is like, is almost like having a teacher at your side teaching you on what you should look for. You can also compare your own analysis to Analytical Trader analysis.
  3. What makes Analytical Trader different from other VSA products?
    The VSA indicators we tried, clearly weren’t verified by a VSA trader nor were they programmed with the minimum care. They draw almost every bar as supply or demand, which is inconsistent with VSA, and getting mixed signals consistently doesn’t help trading no matter how you look at it. There are also those repainting types, who conveniently erase or draw bars when the action already developed: good for product marketing, useless for trading. In contrast, Analytical Trader is non-repainting, marks the important bars, which happen to predict a lot of tops and bottoms in the market, and provides you with an accurate background analysis as an experienced VSA trader would do.
  4. Does it work with tick volumes?
    Yes, tick volume works the same way as real volume as VSA is concerned, as it measures the activity in the market. Plus it’s highly correlated with real volumes in futures, as brokers gather volume data from many other brokers.

Trading Volume

Индикатор Trading Volume отображает объемы сделок на Покупку и на Продажу на текущем баре, либо в среднем за определенное указанное количество баров. Оба объема отображаются одновременно зеленым и красным цветами, для объемов сделок на Покупку и на Продажу, соответственно. Процентное соотношение обоих объемов также показывается теми же цветами. Объемы покупок и продаж отображаются в виде Быков и Медведей (Bulls & Bears).

Примечание: Данный индикатор работает на любом таймфрейме и валютной паре

Методы расчета:

Есть три способа проведения расчетов (можно выбрать подходящий во входных параметрах)

Первый: при выборе (CalculationBy = BidRatio)

Индикатор рассчитывает объемы Покупок и Продаж на основе

Цена Bid (Цена Close)

Означает, что Быки = Цена Bid – Цена Low

Медведи = Цена High – Цена Bid

Второй: при выборе (CalculationBy = OpenRatio)

Индикатор рассчитывает объемы Покупок и Продаж на основе

Open Price – Цена открытия

Означает, что Быки = Цена High – Цена Open

Медведи = Цена Open – Цена Low

Третий: при выборе (CalculationBy = BodyRatio)

Индикатор рассчитывает объемы Покупок и Продаж на основе

Длина тела свечи делится на общую длину свечи по отношению к ее направлению

How to Read Volume Profile Structures

The article is authored by Ivan Delgado, Market Insights Commentator at the brokerage Global Prime. This content aims to provide an insightful look into topics of interest for traders such as volume profile analysis. Feel free to follow Ivan on Twitter & Youtube . Make sure you join our discord room if you’d like to interact with Ivan and other like-minded traders. You can also subscribe to the mailing list to receive Ivan’s Daily wrap. Also, find out why Global Prime is the highest-rated broker at Forex Peace Army.

If interested to watch a Youtube video specifically prepared to complement the teachings of this article, you can access the presentation via this link.

As a trader, you are probably accustomed to using concepts such as horizontal lines of support/resistance, trend lines, Fibonacci retracements, round numbers, or other forms of studies to spot reactive areas in your chart, right?

What if you could add the study of volume through the Y-axis of your chart to pinpoint with striking accuracy areas where the price may see a reversal. What if you could also gain an unfair yet real advantage by anticipating the type of market context most suitable to trade with the trend based on the different volume profile structures by the end of the New York close?

In this article, I will unveil an extremely useful tool, widely used by banks and financial institutions, that goes by the name of “volume profile”. Firstly, credit where is due. The father of market profile — from where volume profile evolved from — , is a futures trader named Steidlmayer. Here is a link to his book “ Trading with Market Profile”. Steidlmayer joined the Chicago Board of Trade in 1963, and has been an independent trader ever since.

What Is Volume Profile?

There are two ways of observing the total volume transactions in any market. As a spot forex trader, you can tap into tick volumes as an accurate visual representation of the total traded volume in the X-axis, which would then make your analysis be based on time.

Alternatively, you can carry out your volume study through the vertical Y-axis, in which case, you are analyzing the total activity based on price levels. It is this latter study what volume profile is about; it’s a histogram of the amounts bought and sold at specific price levels as opposed to specific times.

The volume profile allows any trader to evaluate the market context to keep track of the never-ending auction process. That’s what a market is at the end of the day, a constant negotiating process to find equilibrium/agreement (via the accumulation of transactions at a certain level), and the ones that were perceived too cheap or too expensive (no volume found). The art of reading volume profile is all about studying the anatomy of the market auctions.

Before taking things to the next level, allow me to walk you through some basics. When drawing your volume profile in the chart, you must become intimately familiar with the following values:

1. Point of Control (PoC): It refers to the area in the chart with the most traded volume activity. This is by far the most relevant area you want to monitor as it can help to define the placement of your stops or the areas in the chart where you might find the most pristine entry levels. The highest concentrated area of volume for a particular period of time we will call it PoC or Point of Control and you will be surprised how many times it acts as a wall on a retest. Traders tend to factor this in as an area of support or resistance.

2. High Volume Nodes (HVN): Sub-sequences in the chart with high volume activity. While not as powerful nor symbolic as the PoC, the HVN is also a powerful area as it also represents increased trading activity.

3. Value Area (VA): The range of price levels in which a specified percentage of all volume was traded. By default, the industry standards tends to be 70%. Once I explain the principle of the distribution curve below, it will become much clearer why the default number is the 70%, bear with me.

There are three different types of volume profiles to use in your charts. When you first call the volume profile option through the widely popular charting package trading view, the options include:

  • Fixed Range
  • Visible Range
  • Session Volume (Preferred)

I personally find the combination of the daily price action activity and its respective volume flows at specific price levels the most relevant approach as I will demonstrate in the next paragraphs. The session volume allows you to constantly obtain an update to re-evaluate the market, whereas the assessment of the fixed range or the visible range is more discretionary.

That said, the fixed and visible range options also serve as useful tools depending on the purpose of your analysis, that’s why I will also spend some time going through the most valuable benefits of its use.

Fixed Range: Selection Of Interest Levels A La Carte

Trading the markets, especially if you are an intraday trader, involves constant interaction with your charts. You are constantly looking for areas that you can lean against to take certain actions. Right? This first fixed range option allows you to select any area in the chart to deconstruct the total activity. This is a tool that can be of enormous value if you are looking to tighten or trail your stops as well as spotting areas of most interest to enter your positions.

Let’s say that you wanted to play a short in the EUR/USD 30m chart after the breakout of the range. A fairly conventional strategy would have been to wait for the price to break below the two horizontal support levels and enter short on a retest of either one of them. The next logical question would then be, where would you place your stop? If you are trading conservatively, you’d probably be placing your stop somewhere above the 1.16 in order to leave enough wiggle room in case the rebound returns back into the range.

However, if you think about it, there are other areas in the chart that still make a lot of sense to capitalize on. If you were interested in tightening your stop in such a magnitude that your short trade could exploit the prospects of a much larger risk reward, you could then be tapping into the power of the fixed range volume profile to identify at what price level after the range breakout the highest concentration of volume occurred. You could then use this as an area of relevance to assist your action as a seller. In the example, it may have been a great area to play with a much tighter stop.

There is a multitude of examples I could provide about the usefulness of the fixed range volume profile. However, since I want the core of this tutorial to be about the session volume structures, I’d refrain from further chart illustrations unless you want me to (post comments below). I am sure you can figure out how it could be of benefit to you, depending on your trading style.

Visible Range: The Macro View Of The Market

As the name indicates, the visible range option unpacks as much trading activity as data is in your chart. It portrays the big picture view of the most-traded price levels over a specified period of time.

This option is most suited as part of your daily or weekly analysis to spot areas of interest in the chart. By stepping back and projecting an eagle-view from a macro level, it helps you to easily identify key supports and resistances, which is what I mainly suggest to use the visible range for.

One of the most powerful approaches that I recommend is to select your macro areas of interest by zooming out your charts. Once done, you can start drawing horizontal rectangles at every high volume nodes (in black) or low volume node (in red). The areas highlighted will be by far the most relevant that you want to be paying attention going forward.

Session Volume: In Sync w/ The Day-To-Day Context

While the above volume profile options are by themselves very powerful, I refuse to accept that any can beat the ability to be reading the daily auctions.

The auction process in the last 24h of trading provides a roadmap from which to pre-plan your next trading day. If by the end of trading in NY, you are seeking out answers to the questions: What side is in control? Are buyers/sellers accepting higher/lower levels? What side is trapped and therefore has the higher chances of bailing out? All these questions and many more can find an answer via the session volume profile.

Types Of Volume Profile Structures

Single Distribution — Inconclusive Bias

If in the last 24h, the negotiating process ends up with no side in control of the price action, this is represented in the chart by a belly-type curve formation. At the extremes, you can clearly see the tapering of volume, which means an exhaustion of prices amid the lack of sufficient liquidity to find equilibrium. The dynamics of price discovery then suggest that price must revert back to the mean to find new two-way business/acceptance levels.

This structure leads to what’s often referred to as a market in a range. If you think beyond the conventional technical education, the formation of a range is nothing more than the test and failure to agree on higher or lower levels.

The market will constantly be exploring new prices up and down. However, what’s really important is not so much whether or not a level has been tested but the ability by market forces to accept it, thus building value. The thicker the volume on the Y-axis of the histogram, the more value is built as buyers and sellers come to agree on the new area of interest to transact business.

So, let’s tackle the key question. How can we get prepared to trade these structures the following day? Whenever we are presented with a single distribution aka a range, the areas of interest will include the extremes of the range or alternatively, the side in control of the POC (Point of Control).

As the chart below illustrates, the upside edge of the previous day’s single distribution never came even close to be re-rested, but what we did get was a clear rejection off the POC, which then led to a breakout of the range.

In the next example, we have the creation of another single distribution structure. The next day, the price recovers above the POC (red line) and starts to find acceptance with a subsequent backside rejection. That’s a major clue that the resolution of the range-bound conditions might come to a successful conclusion for the interest of the buyers. The moment that in a range the POC starts to act as support or resistance, that’s the first important hint that as a trader you want to pay close attention to gauge the next directional bias.

In the majority of cases, whenever we end up with a single distribution structure, the POC for that day will come nearby the 50 mid-point of the day’s range. This is not a coincidence, as one of the characteristics of the single distribution is its symmetrical structure in line with the principles of the bell or normal distribution curve.

One of the key lessons from the tutorial about the 4 Pillars in Forex included the relevance of the bell curve, which happens to be one of the backbones’s behind statistics and probability theory. It is also essential to understand for you as a trader if you are going to dig deeper into the study of volume profiles.

Remember that one of the natural laws of statistics is that as we increase the repetitious trials of random events that arise from flipping a coin, it results on a more pronounced skewness of results towards the center of the chart or bell shape. This is known as the central limit theorem. This is precisely what’s at play when we see the single distribution structure in volume profile. We have more and more order activity coming through the books with the pre-condition of not creating enough of an imbalance is supply or demand.

As the volume keeps increasing by N = number of times a new order comes in (times someone — human or algos— take a trade), the more pronounced the shape becomes, with the creation of another universal truth in statistics, that is, standard deviations. This states that over 68% of the volume will be accumulated under 1 standard deviation (in blue), while 95% of the volume will come within 2 standard deviations (in red). Now you will understand why the standard market value of a volume profile tends to be 70%.

Multiple Volume Distributions — Directional Flows

It refers to an auction process that creates two or more areas of value via a noticeable volume accumulation in the histogram. In the majority of cases, we will have the creation two distributions, less so a triple distribution structure. In the illustration below, you can find an example of a double distribution day.

As part of the double distribution structures, there are up to 4 subcategories we can classify. Each one of these structures suggests the likelihood of a distinctive price pattern to be expected the next day.

The critical factors that we must account for when evaluating multiple distribution structures include the number of thick areas in the histogram (value built) and the price close. There is a strong dependence on where the price closes by the end of the NY session to evaluate the next day’s play.

Let’s now break down these structures.

Short L-Shape (No Trapped Longs)

Following up with the example of the EUR/USD, in the following 24h, the pricing of the pair created a double distribution structure. As part of this formation, we now need to classify what type of structure it is based on where most of the volume was traded, as depicted by the POC (Point of Control).

On Oct 24, the price spent only a brief period of time before selling-off, leading to a price sequence of low-volume bars through the histogram. As the dust settled, buyers and sellers started to agree on the next level of equilibrium near the lows of the day around the 1.14 area.

This market dynamics are one of the most powerful for an ultimate trend continuation. If we were to decipher the clues behind the auction process, via volume profile, it clearly indicates that the market agrees on the value lower.

The fact that the majority of the volume was accumulated near the lows, and most importantly, with the price closing around the lows of the day near the POC, is a strong statement that the market is not interested in profit-taking.

Therefore, any potential rebound would most likely see sellers committed to adding to their short positions. This is a pattern that runs the risk of resulting in shallow rebounds before the continuation of the trend.

I will also illustrate below what a triple distribution looks like. Here it goes.

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