Why use Volume Charts to Trade Forex

Volume Charts are a Non-Time Based Bar Chart. A new bar forms based upon a volume threshold criteria rather than a time interval. Volume indicates the beginning or end of many trading opportunities. With volume based increments price movement and price momentum become obvious.

Volume is the single element that indicates pressure to move price. More pressure is better. Think of pressure as potential energy when price is consolidating. When price is moving the energy is kinetic and has momentum trading energy.

What’s the Impact of Volume based price movement

The impact of a volume based price movement is a direct relationship to supply and demand. Only when imbalance between buying and selling exists does price move upward or downward. More severe volume imbalance creates more aggressive price movement. Imbalance begins at price support or price resistance areas for price continuation, price breakout or price reversal. Just prior to the imbalance price often becomes constrained and forms a consolidating price range. Volume either noticeably shrinks or increases.

With time interval charts a price bar is created whenever a discrete time period has elapsed. This time based approach can create many bars on the chart that are of little interest.

Volume charting shows when sentiment is changing

2_Forex_Trading_BuzzWith Volume Charting a bar is created completely based upon increments of volume. They reduce or eliminate price volume analysis. Each bar on the Volume Chart clearly displays the impact of buying or selling commitment, which price direction is in control, the price areas where trading sentiment is changing and the rate that sentiment is changing.

A new bar on the price chart is when volume meets a set threshold. Threshold criteria would be a number of shares for Equities or a number of lots for Futures and Forex. With Non-Time Based Trading Charts the threshold criteria affecting the creation of new bars should be defined according to the types of moves used for your trading style.

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