Volume Analysis

Volume Analysis

Volume Analysis

Typically two types of volume we observe most often.

i) Volume Spike

ii) Volume Trend

Volume Spikes depicts 3 types of volume:

a) Market overbought or oversold (after a long sustain move, Or breaks the previous highs or lows, purged the liquidity and closes below the highs or lows. Leaves a wick)

b) Continuation (occurs after reversal)

c) Volume breakout (typically range breakout with a high volume)

Usage in the market:

- CONFIRM TREND STRENGTH: Volume can confirm the trend direction as traders want to see increased volume in the direction of the trend and decreased levels of volume when the currency pair is correcting in the opposite direction of the trend. For an uptrend, this means increased volume when the price is moving up and decreased volume when the price is moving down. For a downtrend, this means increased volume when the price is moving down and decreased volume when the price is moving up.

- IDENTIFY TREND WEAKNESS: If price is reaching new levels of extremes (higher highs or lower lows), but volume is not confirming and supporting those new price levels, then this could provide first warning signals that the trend is weakening (retracement can be expected) or ending (reversal potential, or sideways / range movement). Read more information on how to interpret divergence.

- BREAKOUT CONFIRMATION: During a consolidation, volume measurements typically are low. If volume picks up upon the break of that consolidation pattern (wedge, triangle, flag, etc), then the volume is confirming a higher chance of a sustainable breakout. In the following example, I apply volume in BTC m15 TF. I represented the 3 types of volume by a, b and c. The blue/aqua blue candles are positive and the red candles are negative volume.

Indicators - Volume, Onsens FX, Exhausted Volume