Volume is the number of contracts, shares or lots that are being traded at any moment. It is important to know how strong or weak is the volume of a specific currency pair when we are trading in Forex, because it lets us know how the forces of supply and demand are working. But we must keep in mind that volume has to be used in combination with other types of analysis. For instance, a good way to use volume in our analysis is to combine it with key support levels of support or resistance.
On the one chart of the GBP/AUD, courtesy of the Forex Broker ActivTrades, we can see that before the price gets to an important resistance like the 200 period exponential moving average (blue line) or the round number level of the 0.9300, volume increases showing us that demand has also increased. But we can also see that when the price bounces from those zones to the downside, it has been because the volume had decreased.
If volume does not increase or stays high when the price reaches a key support or resistance level, then it would be very difficult for the price to break those levels and it tends to bounce back in the opposite direction or consolidate around that area, while the volume just drops.
The Forex Broker ActivTrades is offering a very interesting and insightful seminar on volume spread analysis in London, which could be of great help for those interested in learning more about how to add this powerful indicator to your analysis. More information and details about the seminar can be found at https://www.activtrades.co.uk/index.aspx?page=education_events&desktop=true. The seminar is live and it will be given on May 8th, 2015.
Alexander Londono – Analyst contributor at ActivTrades.
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