Absolute volume values on the foreign exchange market are unattainable even for government statistical organisations, so in order to estimate buying or selling pressure on FOREX we use tick volume, i.e. the total number of quotes for the specified time period. It is worth mentioning that in practice, absolute foreign exchange market liquidity tick volume values follow the number of total deals in absolute units.
- The main principles of using volume indicators:
- When volume decreases it means that there is less interest, so it may be time for a reversal or price consolidation;
- When volume increases it means that there is more interest, so it may strengthen the prevailing trend or a new trend may appear;
- Sometimes gradual decreasing in volume is accompanied by rapid price movements;
- Volume highs signal that it may be time for a reversal.
As daily forex trading volumes are pretty much at the same levels, and with intra-day trading volumes dependant on the time of a day (during the Japanese session trading volume is at its lowest levels, but when the American session opens and the European session still continues trading, volume is at the highest levels), it is more advisable to use volume indicators only for short time periods (less than an hour), and which cover price behavior within one trading session (Japanese, European or American).
