Very often, beginning traders see a price trend only as a set of lines on the price chart. They can spot some patterns like head and shoulders for example. They can built sloping channels, trend lines and Fibo grids. The can read various oscillators, moving averages etc. More often than not , their charts are overcrowded with technical indicators. The thing is that this excessiveness leads to poor trading decisions. That is why these poor guys usually see their patterns fail at the worst time possible. They stop understanding the market in general, they do not see its intensions, which is the key thing in successful trading.
When comparing different charts and various time frames (like M15 and H1 or H4 and D1), they sometimes cannot define the starting point for this or that movement. You are certainly familiar with such situations. OK, by now you are probably wondering whether there is any alternative to such a point of view that leads to poor analysis and trading. Well, of course, there is. Obviously, you want to learn how to read the market in order to anticipate its behavior most of the time. Ultimately, this is the only thing that matters in trading since this leads to consistent results in the long run.
Luckily for all of us, Masterforex-V Academy decided to share with us some secret winning tips and tricks.
Traders on Trading Volume and Forex Futures
Why is futures trading so attractive? Why do Forex traders switch to futures instead of spot trading? OK, look at the 2 charts below – the spot Forex EURUSD and the EURUSD futures (CME).
The price behaviors are nearly identical. They are different by the basis:
When selling futures, you get more reliable data (the current price, the scale) since futures are traded and offered only by particular exchanges. The futures have a number of predetermined attributes and parameters, including the trading volume. This makes it possible to be exact in monitoring the amount of traders and the overall trading volume and turnover.
Mostly, Forex futures are traded on CME since the mentioned exchange located in Chicago can boast the world's biggest trading volume when it comes to currency futures trading. On top of that, CME reveals the open interest for all the futures and options you can trade there. The following factor is very significant when analysing the market and it helps to make more decent trading decisions.
Until recently, traders used to be using only fundamental and technical analysis to make their trading decisions because the data on trading volume were available only to those who were on the trading floor (they used to call them insiders).
Why is trading volume so important?
The thing is that trading volume and open interest indicate the crowd's sentiment and intensions. This can help you to anticipate the crowd's behavior more precisely, thereby getting a certain competitive edge over some other traders. If to match the trading volume data you have got with the rest of the data gained by means of fundamental and technical analysis, trading decisions become more consistent. It is like looking inside the cristal ball.
Professional Traders on Trading Volume: Demand Stimulates Supply
Everyone probably heard that the contemporary market relations are based on the supply-demand ratio. Nevertheless, few people actually consider this factor in the spot Forex trading since the spot Forex market doesn’t provide the trading volume data as it is. That is why our research will be projected on futures options and stocks.
Well, on the surface it looks pretty easy. There is some demand when people buy and there is some supply when people sell. Still, situation may differ a lot. It would be reasonable to consider different supply-demand combinations. There are at least 4 combinations:
Demand without supply
Demand with supply
No demand with supply
No demand and no supply
The following combinations occur regularly. At this point, it would be reasonable to look at the market through the eyes of each market participants. There are buyers and sellers, there is nothing secret about it. There are mediators (3rd parties) like clearing houses, brokers, dealing centers, which pursue their own interest (deposits, fees, commissions). They render broking and dealing services to traders and investors. Still, buyers and sellers (bulls and bears) can be of various scale and weight. There are institutional traders (organisations and institutions) and retail trader (individuals). Apparently, this influences the markеt behavior. However, we will not go into much detail about it here (you can find more information on the topic on the web on your own if needed).
Obviously, the key role is usually played by big-scale market participants since they can simply monitor market opportunities and manipulate the market through market-makers and experts, thereby pushing the price in the desired direction. In this aspect, they have a certain competitive edge over small-scale retail traders.
According to Maxim Gun, a leading expert from Masterforex-V Academy, it may seem that big players (also know as the smart money) can do anything, which is not always the case. Sometimes, the crowd succeeds in hedging their positions, which may result in big-scale players getting some losses. When it comes to trading, you can never be 100% sure. The smart money can manipulate the market but they cannot control it 100% of the time. Take currency interventions for example. Central banks can spend billions (in dollar terms) to support their national currencies. Sometimes, the interventions fail, which means the money is wasted. The bottom line is that no big-scale player can always get the desired outcome, not to mention retail traders.
Therefore, the key thing to determine is the smart money’s intensions and to follow them.
The key concepts. The scale represents the amount of shares (or deals) traded during a certain period of time (minute, hour etc). Trading volume analysis is one of the key parts of technical analysis. It seems like we get some kind of insider information this way since there are no actual data available on the web. Not so long ago, the developers of VolFix helped us to figure out the situation by showing us their concepts based on trading volume.
Let’s consider the most popular volume types:
Tick volume shows the price dynamics over a certain time period.
Pure trading volume shows the amount of sold assets over a certain period at a predetermined price.
Quantitative volume shows the amount of deals over a certain period (COUNT).
Pure trading volume is the type we are interested in most of all since it shows us the market interest concerning certain price ranges or certain price levels. This leads us to believe that price fluctuations are major projections of money inflows and outflows. In other words, the price-volume relation does work.
By analysing trading volume we can define the potential start/end of a certain price move since the price moves are cyclical for any timeframe.
By the way, Masterforex-V Academy regularly conducts free webinars for beginning traders to get them up and running fast. If you are eager to learn more about volume and other key aspects of successful trading, please feel free to visit Masterforex-V Academy's forum for traders and investors. On top of that, you can visit the FREE school for beginners under Masterforex-V Academy! Good luck!
