Best Forex volume indicators - how do they work?
Although there are quite a few volume indicator types, they all follow the same principle. This is looking at the general amount of financial instruments being traded on the market for a predetermined period of time.
This is then visualized on the chart and provided for the trader. Let’s take the USD/JPY chart as an example with the volumes indicator already activated.
As you can see in the lowest part of the chart there are green and red lines below the candles. These are the visual representations of volume in the market at that specific moment.
Usually, this is the preferred strategy.
- Big green line = go long
- Big red line = go short
But that is not the only thing that best volume indicators for traders work according to. There is a thing called “median volume” that needs to be determined before traders can place a trade after looking at the volume chart.
Let’s take the USD/JPY currency pair again and see how these “median volumes” can be found.
As you can see on the chart, highlighted with red arrows, there are two almost identical volume points where the price managed to spike considerably well. When hovering the mouse over these volume indicators we see that it’s somewhere between 210,000 and 220,000. What this means is that the median volume is 210,000. If there ever is another volume amount above 210,000 in the future and it indicates a “green line”, then it could be a good indicator that going long at that moment is a good idea.
If the volume based indicator MT4 is showing a red line on the same volume amount or more, then going short could be a good decision.
The concept is exactly the same with cTrader as well and looks something like this.
Where to find best volume indicators for traders
The volume indicator is a technical indicator for MT4, MT5, cTrader and various other trading software. Usually, these platforms have the indicator pre-installed so there’s no need to download anything.
For example, with MT4, you can simply go to Insert > Indicators > Volumes > Volumes and voila, you will see the red and green lines at the bottom of your chart. This is the exact same case with cTrader as well.
However, unlike the volume profile indicator for cTrader, MT4 has the option to add additional volume indicators to its portfolio. These indicators can be found on the MetaQuotes marketplace.
Keep in mind that most indicators you find on the marketplace may be free, but the most useful and feature-rich ones tend to require some sort of payment. However, most of these paid indicators are designed for seasoned veterans of Forex trading, so you may not require it for the foreseeable future if you’re a beginner. The default volume indicator is more than enough for that.
Mistakes to avoid when using the volume indicator
The first mistake with the volume indicator, much like any other indicator, is using it exclusively. What this means is that you don’t use other indicators on top of the volume indicator. There are no top volume indicators for FX traders that can give you a 100% guarantee that your next trade will be successful, which is why it’s important to use other tools too.
The second mistake is that you don’t find the median volume first before placing a trade according to the volume. Sure it may look like the volume for the day is extremely high, but is it high according to this week’s total volume? Many traders like to keep their positions open for a few days, so it’s important to look at the bigger picture too.