Always consider volume in relation to the market and session

Question

Hi again Anna, I hope you’re well. I’ve been reading your excellent Kindle book on Volume Price Analysis, and I must say it is very interesting indeed. I do have a couple of questions though, which hopefully you won’t mind answering?

1. In your view, what is a good period setting for a Moving Average on the Volumes? In other words, just what is average? You refer lots to above average, below average and average volumes, but I haven’t grasped what average needs to be 🙂 I have currently applied a 14 period MA to my Volume indicator on MT4, but would 9 or 20 be better?

2. Be grateful if you could give me your thoughts – tx again

Answer

Hi – many thanks for your email and also your very kind comments about the book and thanks also for asking two interesting questions which I will do my best to answer. The first question goes straight to the heart of volume price analysis.

What is average, high or low and in forex this is complicated further by the 24 hour trading aspect, which adds another layer.

From a personal trading perspective I have never used a moving average in this way, and simply use other techniques to define high medium and low, to assess this in whichever timeframe I am trading. In many ways this comes down to spending time on the charts and also the markets you are trading. In the cash markets of stocks, this is relatively straightforward as we have no 24 hour markets to worry about, so the volumes traded on a stock are all measured in the same timeframe, of the exchange itself, and therefore judging high medium and low, is a simple process of judging this by eye on the charts.

The same is also true in the futures markets, although complicated somewhat here, with the advent of Globex and 24 hour trading. In spot forex, it is certainly harder, and even more so given the volumes traded in London and Europe are hugely different to those traded in the Asian session, with the first distorting the second when looking at slower charts. High volume in Asia will be low volume in London and vice versa. This is the main issue with spot forex in terms of volume and is something we always have to bear in mind when moving from the deep liquidity of Europe into the thinner liquidity if Asia.

Volume is always relative and has to be viewed in that way. On the MT4 platform one of the measures I use when comparing sessions is to look at the tick count itself which will then give a purely objective view on the volume itself. If you do trade the same pairs, you will quickly develop a sense for what is high medium and low from the tick numbers on screen, which will then help to give you a view as to the relative nature of the volume. This is also true in futures, where the number of contracts traded in a session and for a particular instrument will instantly signal this to you, once you begin to study the charts regularly. It’s all a question of having an understanding of what is ‘average’ for that instrument or market and then its simply a question of a visual comparison to take your eye quickly to those anomalies of high ultra high or low, and the associated price action.  If you are comparing on fast timeframes in the same session this is less of an issue and you will quickly develop a sense of ‘average’. The other thing to do is to watch the volume during major news releases – again, this will give you a benchmark for high, medium and low. I hope the above helps and thanks again for a great question – Anna

By Anna Coulling

About Anna 1029 Articles
Hi – my name is Anna Coulling and I am a full time currency, commodities and equities trader. I have been involved in both trading and investing for over fifteen years and have traded many different financial instruments, from options and futures to stocks and commodities. I write and publish articles ( mostly for free ) for UK and international publications on a wide variety of financial issues, and in particular I enjoy helping others learn how to invest and trade.

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