What is a Volume Indicator?

Despite Forex traders looking for every advantage possible, a volume indicator is often left as the last port of call. Many retail Forex traders first look at the graph. A currency which is going up is often seen as attractive, because it may continue to go up… but how can you check that this trend will continue? A car with a stated large engine is attractive, but why not check under the bonnet?

Table of Contents

Best Award Winning Brokers

Show Search Filters
  • eToro.com is a reputable trading platform, famous in the social trading industry. In 2018, the brand decided to conquer the US market and launched the local brand there. First, the company functioned solely as a crypto trading broker. Yet, later it added other items to its list of tradeable assets. Therefore, now it offers stocks and ETF trading as well. 

    With a history dating back to 2007, eToro has amassed a large user base across more than 140 countries. When cryptocurrency emerged, the brand used a unique chance to enter the American market.

    One of its key features is CopyTrader, the social trading tool and a proprietary product of the project. It allows novices to repeat trades from top traders with just a few clicks. Thus, the tool offers a fresh approach to this asset class.

    This guide aims to provide a comprehensive eToro review to help traders make informed decisions.

    etoro USA

    eToro offers trading services across many regions worldwide including the USA

  • OANDA (www.oanda.com) boasts of a high level of trust and reliability, as evidenced by its impressive Trust Score of 93 out of 99. While OANDA is not a publicly traded company nor does it operate as a bank, it is subject to regulation by seven Tier-1 regulators, signifying a highly trusted status. Additionally, it is supervised by one Tier-4 regulator, which means that users should utilize a cautious approach to risk management.

    OANDA Corporation is regulated by the CFTC/NFA. OANDA is a member Firm of the NFA (Member ID: 0325821). CFDs are not available to residents in the United States.
  • A standalone copy-trading ecosystem, providing equities, foreign exchange, commodities and cryptocurrencies markets. Provides a global selection of brokerages.

Feel the (driving) force

A volume indicator can help with market analysisIn simple terms, a  volume indicator is measure which will highlight how many securities were traded during a given period of time. Any technical trader looks at the graph, but how often do they look at what propels the graph? For the graph to keep going up or down then someone must be driving it. This means buyers or sellers. If you can work out how many more buyers than sellers there are (or vice-versa), then there is a fair chance you will have a good idea which way the graph is going.

Do not let your eyes deceive you…

A volume indicator can highlight a risk to be aware of Volume indicators can work both ways. Although we have spoken about using it to predict which way the graph is going next, it can also be used to explain unnatural moves. If you wake up to find a large move in a stock in a quiet period of the year (e.g. August or December) it would be a good idea to check the volume. If there are low volumes, then a sudden rash of orders, not necessarily big ones, can cause a large move, which will be more powerful than the demand suggests. The resultant spike in the share may suggest a large move, but this has been artificially created by low volumes. Something to be aware of before you jump into trading this trend!

How many volatility indicators are there?

Simply put, there are many. We have listed a few below which you can use to your advantage when volatility trading.

  • Average volume: Fairly simple in that it is the number of securities that have been traded over a period of time. The devil is in the detail though: check what the time period is! It can be all sorts such as minutes or hours.

  • Volume momentum: as the name suggests it measures the growing force of buyers. In effect it is a multiplier factor, where you are looking for a growing number of buyers (or sellers!) at each data point. Ideally you want to spot this early so you can 'ride the wave' and eventually get out before the momentum changes direction.

  • Force index indicator: a more complex volume indicator, the force index requires a bit of mathematics. It assigns a number to the power required to move a security. It can be particularly useful to spot when a security is going to break out, before volume momentum takes hold.

  • Volume oscillator: An interesting measure as it plots the relationship between two moving averages. This allows you to gauge which is the strongest between the two and which may help you place a Forex trade.

  • Balance volume: Another measure which helps to predict a breakout, it works by showing the relationship, or lack of, between volume and movement in the price of a security. If there is a sudden increase in volume but no noticeable move in the price of the security, then the likelihood is that a sudden and strong directional move will occur. Balance volume helps identify this. 


A volume indicator helps spot a break outThere are other indicators, indeed one of the most famous, the Relative Strength Index (RSI) is worth being aware of. It can be applied to trading many different securities but also Forex tradingAll indicators are useful, but a word of warning! Rubbish in - rubbish out... Although commonly used to describe that data being input into a model may be rubbish, giving you rubbish results, it can also be applied to indicators. You can use them to confirm trade ideas, but not necessarily rely on! Keep your wits about you when trading currency volatility by sticking to a disciplined approach and your trading plan!

You May Also Like…