How to use volume?

[Phoenix01]

Everyone talks about how fundamental volume is to price action but i cant see to find anything which measures it accurately. I cant seem to find any consist patterns or things to watch for in the standard volume histogram.

Has anyone found a way to see if volume is decreasing in retracements, or low volume at tops. I have a system based upon support and resistance and i wasn't recently reading a book about market profile and it kept talking about how you should know if the recent move in the market is on high or low volume. If the market is on low volume key levels will have more chance as acting as support or resistance. But if a market is moving on high volume the chances are these levels will be broken.

Has anyone got any ideas on how to calculate intraday volume, to analyze volume in swings? (An indicator or a method).

Thanks
Omar

 

[Jaydee]

Hi Omar,

I can't really comment regarding the analysis of volume. However, what I can add is that I don't think that volume is a directional indicator:

Typically, I find that the magnitude of the volume at support/resistance is directly proportional to the magnitude of the move (whether that may be a bounce or breakout). My reasoning is that a lot of people enter at key S/R levels and, therefore, should the market bounce from support or break through support, the traders which find themselves on the wrong side are going to stop out - adding to the direction of the move. The more traders (volume) in the market at this point, the more that will stop out, increasing the magnitude of the move.

With this idea in mind, I think that volume is a very useful tool as you should enter when the volume is high. If you are right, in such a situation, you would capture a larger move than if the volume was low or lower. I am yet to see how volume is a directional indicator, however. I see support/resistance hold as often as it breaks with the same volume patterns.

 

[liontrades]

There is no wholly accurate volume in Forex due to the lack of a central exchange. I have however seen it used before but in comparison to the advantages it presents when trading stocks, I would look to other methods.

 

[alloy]

Think of volume as what fuel is to your car. Without fuel you wouldnt expect to get very far in your car, without volume behind a move you are seeing a lack of participation which on the majority of cases means there isn't conviction behind the move...