[bahrawy21]

hey friends
i'd like to ask , i have heard from a friend that volume isn't that important in forex as it is in stocks and this is because its very big market and its not easy to have instant access to the real volume of money

i'd like to ask is that true and if not how we can use volume effectively to trade

[David Waring]

Hi bahrawy21,

Glad to hear from you.

I would say that volume is important in any market, as it allows you to see how much money is behind a particular move. If there is for example an uptrend that is accompanied by falling volume each day the market move higher, then this tells me that there is less and less participation in the move higher and therefore it is more likely to fail. Conversely if volume increases into the move, then this tells me that as the market trades higher more and more people are jumping on board with the trend, and therefore the market is likely to continue.

This is true in the forex market in my opinion just as it is true in any other market. The difference however is that because the forex market is an over the counter market, volume is not reported as it is in exchange traded markets. So while traders can get a guage of what the volume is by looking at a currency futures chart, only a small percentage of FX trading happens on the futures exchange so this is only a small picture of the overall market.

To fill the void of the lack of volume, many traders will place greater emphasis on momentum indicators such as the Rate of Change (ROC), in order to try and get a guage on the market's participation in a move.

For more on the diffence between over the counter and exchange traded markets visit this link:

Forex Trading - The Difference Between Exchange Traded and Over the Counter Markets

For more on the role that volume plays in the market visit this link:

Technical Analysis Lesson 3 - The Last 3 Tenets of Dow Theory

Hope that helps. As always if there are any other questions, comments, or differing opinions on this one please feel free to hit the reply button and joint the conversation.

Best Regards,
Dave

[Simit Patel]

i agree with what david said -- that volume is very useful to see the trend of the strength. since volume in forex transactions is not really maintained officially, it can be hard to gauge. personally, i check to see if oscillators are showing divergence. david had a great post on how you can check for divergence in his lesson on RSI.