Forex Technical Analysis Articles - Volume based indicators - Volume

Technical Analysis

1. Introduction

2. Importance

3. Healthy Trends

4. Healthy Trends Cont.

5. Healthy Trends Cont.2

5. Unhealthy Trends

6. Unhealthy Trends Cont.

7. Unhealthy Trends Cont.2

Volume measures the “worth” of a market move. If a currency pair has a strong price move either up or down, the perceived strength of that move depends on the amount of volume for that period. Moves backed by higher volume are more significant. By monitoring volume, a trader should not be left behind on important market moves. Important moves will usually come on a spike, or a short period of time when there is more volume than normal. Volume can help a trader prepare for breakout from a trend. Traders should also be able to identify periods where there are calm ranges and consolidation as they will have lower volume.

Consider the figure below:

Volume Figure 1

Figure 1 – Examples of movements on higher volume; and sideways price action on lower volume.

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Table of Contents

1. Introduction
Volume is an important factor in judging the perceived strength of market moves.

2. Importance
Volume’s significance; the difference between volume in the equity and forex markets; the terms accumulation and distribution; and volume’s role during reversals are examined.

3. Healthy Trends
A "healthy" trend is one in which volume is increasing as the trend progresses as more traders join in. An example using the USD/JPY pair is set up.

4. Healthy Trends Cont.
Two trends in a daily USD/JPY graph, one an uptrend and one a downtrend, are examined in detail.

5. Healthy Trends Cont. 2
Our USD/JPY example is completed with a detailed look at a second uptrend.

6. Unhealthy Trends
This page examines trends that occur with decreasing volume and how that can play into a reversal.

7. Unhealthy Trends Cont.
An example of decreasing prices on decreasing volume is shown using the EUR/USD pair on a daily chart.

8. Unhealthy Trends Cont. 2
The EUR/USD example continues with a look at the pair’s movements during the first half of 2006.