Volumes

The price of an instrument is determined by the market – what traders are willing to pay for it, hence it is important for traders to be aware of the activity of other traders. The activity, and the changes in activity, of a market is seen through volume changes. The volume indicator simply follows the movement in volumes (the amount the instrument is being traded). Many volume theorists believe that volume changes precede price changes and hence volume is a leading indicator to determine future price trends.

It is importance for traders to use volume when making trading decisions based on technical indicators as it determines buying and selling pressure. A trader which ignores volume may miss important market movements.

The volume indicator is displayed as bars below the instruments chart. A green line appears when volumes are increasing (suggesting growing interest in the market) and a red when volumes are decreasing (suggesting diminishing interest).

Signals

  • Where volume is increasing it shows that there is high market demand and hence prices are likely to increase.
  • Where volume is decreasing it shows waning interest in the instrument and hence prices are likely to decline.