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Volume Trading Basics | Forex, Crypto, Stocks

Volume is one of those trading terms that can be a bit confusing. What does it represent? Is it an indicator? How is it calculated? How do you interpret it? We’ve got all the answers here.

Let’s tick off the definition: if one buyer and one seller perform a transaction at an agreed upon price between them, that is counted as one unit of volume. The total number of transactions makes up the volume for a specific period (which can be minutes, hours, days, etc.)

Many chart providers and brokers automatically display it on the bottom of charts but if you can’t see it, then you can find it in the indicator section.

Because it’s also an indicator, it has an additional interpretation: when markets make a significant move, its continued strength is correlated to the volume for that period. The more volume there was during the movement, the more stable it will be (i.e., there won’t be a reversal).

This interpretation comes from the notion that the more transactions there are, then that means there is more interest in this move, that more people (and more money respectively) want to take part in this move.

So the presumption is that more interest will propel a trend further. In an uptrend, the bulls need more and more people to become buyers and continue pushing prices up. That would be a sign of a healthy uptrend.

Facebook chart with example of increased volume

A sign of a waning uptrend is when the price still continues increasing but at the same time the volume is dropping. Technical analysts take this as a sign of an incoming reversal.

Support and resistance levels also come into play when interpreting this indicator. Breakouts above or below critical levels on large volume are taken as strong signals, while those without too much transactions are looked at as potential false moves.

One very important note that we need to make here and clear up any confusion: volume doesn’t refer to the amount of money that is taking part in the transactions. It is only a measure of the number of transactions.

U.S. stocks’ volume can be found the easiest, as their trading happens on several exchanges like the NYSE and NASDAQ. Those numbers can be easily found on news outlets like Marketwatch.

But it’s a different story when it comes to volume in Forex – there is no live (and true) measure for it. Actual foreign exchange is decentralized and happens in different financial hubs around the world. These hubs aren’t necessarily connected and they literally don’t know how much volume there is in the rest of the hubs in real-time. You can however find historical data from the Bank of International Settlements which is published every three years.

Cryptocurrencies also have an interesting relationship with volume. Their trading is also decentralized and happens at even more exchanges than fiat currency pairs. But the number of transactions can be seen, as the blockchain technology allows (almost) complete visibility for every interaction between buyers and sellers. Ethereum’s transactions can be found fairly easily on scanner sites.

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