Volume in forex trading is a very important factor, one that many beginners tend to disregard at first. Even if the forex market is currently the most liquid market there is, taking volume into account is still required.
The volume in trading simply represents the number of participants currently in the market, how they are acting and how that can affect our trades. The more active traders there is, the more volume there will be. It’s important for traders to acknowledge the volume because they need to adjust accordingly, managing their trades, entering or exiting at specific moments. Judging the volume will help a trader know if he should get in the trade or if he should stay out.
Take this analogy: imagine a surfer on the coast of Hawaii. He wants to surf the waves. To enjoy his hobby, he needs the waves to be big in order to actually surf and not just stand still and eventually sink. However, he also needs the waves not to be too big, because that could shove him right to the rocks on the shore and turn out quite dangerous. Forex trading and volume are the same. They go hand in hand. A good amount of volume is important for a trader because he needs the market to actually move if he wants to make any kind of profit. However, he also needs the market not to move too crazily, as it could wipe out his account quite fast.
When thinking of high speculative moments- moments when the volume is so high that outcome of trades become very very hard to evaluate- the news releases come to mind. The NFP news for instance could be the surfer’s “too big a wave”. It’s a very high volume and crazy moment, and a trader must know that it’s going to happen and be prepared to make adjustments, or stay out of the market at that time. Speeches can also drive the markets to high volume spurs and be very dangerous for your trading account.
Knowing how to evaluate volume will tremendously help your forex trading. Quite simply, if you’re looking to enter breakouts or big trends right after the US market closes or during the Asian session, the volume will be so low that it will result in a lot of fake outs and a lot of money lost. However if you know how to evaluate volume, you will know that a better idea is to try trading breakouts and entering big trends during the London session, because that’s the biggest session of all with a lot of traders in the market creating a lot of volume. Volume will create trends, trends are easy to hop onto and ride for as long as possible, so all in all volume will make forex trading easier.
To summarize, do your homework and find which times have the most volume in the market. Forex trading gets so much easier once you know that there are so many people in the market at the same time as you are, and you can just ride along!