Forex Volume Indicators are some of the most dependable technical indicators that every forex trader ought to understand.
Finding out what lies in volume indicators will help you boost your earnings by more than 81.9%.
This article takes a deep dig into the origin, calculation, and application of the main Forex Volume Indicator types. Let us start by defining Forex Volume Indicators.
What Are Forex Volume Indicators?
Forex volume indicators are technical indicators that tell you the number of price changes for every time interval. They are some of the most reliable technical indicators because they combine momentum and volume indicators.
Momentum indicators tell you the rate at which currency pairs’ prices change. On the other hand, trend indicators help you forecast price direction compared to historical data. How do you trade using a volume indicator?
Read on to find out.
3 Best Forex Volume Indicators
The three best forex volume indicators are:
- On Balance Volume (OBV)
- Chaikin Money Flow
- Klinger Volume Oscillator
OBV is a technical indicator in forex trading that reflects relative buying and selling pressure on a forex currency pair. It utilizes the negative and positive flow of the trading volume to predict when prices are likely to change.
The genesis of the 1960s saw Joseph Granville create OBV, arguing that volume is a primary market determinant and so reliable that it should be prioritized in stock markets. OBV’s relevance later led to its adoption in forex trading.
Use any of the three formulas to calculate OBV:
OBV = Previous OBV + Current Day’s Volume
If the currency pair’s closing price is higher than the previous day’s prices.
OBV = Previous OBV (+ 0)
If the currency pair’s closing price equals the previous day’s prices.
OBV = Previous OBV – Current Day’s Volume
If the currency pair’s closing price is lower than the previous day’s prices.
Here is how you should interpret OBV.
Expect a trade of increasing volume before the commencement of currency pairs’ prices uptrend. Likewise, a falling volume trend echoes that currency pair prices are about to start a downtrend.
The rising of OBV during a trading range echoes buying pressure (accumulation). The falling of OBV during a trading range means there is a possibility of selling pressure (distribution).
Chaikin Money Flow (CMF)
Chaikin Money Flow is regarded as the best volume indicator for Forex. Mark Chaikin created CMF in the early 1980s aiming to compare stock buying and selling pressures.
Many forex traders adopted CMF to help them determine forex currency pairs’ accumulations and distributions as a no-nonsense volume indicator. The pressures help you determine future prices and opportunities.
How Is Chaikin Money Flow Calculated?
The formula for calculating Chaikin Money Flow is:
[(((Current Close – Low) – (High – Current Close)) ÷ (High – Low)) × Volume] ÷ Total (Volume, 21)
You can calculate CMF in 3 steps to simplify the computation:
Stage 1: Calculate the Money Flow Multiplier
Money Flow Multiplier = [(Close – Low) – (High – Close)] ÷ (High – Low)
Step 2: Find the Money Flow Volume
Money Flow Volume = Money Flow Multiplier X Volume for the Period
Step 3: Calculate CMF
21 Period CMF = Sum of Money Flow Volume for 21 Period / Sum of Volume for 21 Period
The above calculations give values ranging between 1 and -1. CMF closer to 1 represents a higher buying pressure, whereas closer to -1 indicates higher selling pressure.
Klinger Volume Oscillator (KVO)
Stephen Klinger created KVO as a long-term accurate and short-term sensitive price determinant. In chart plotting, KVO usually appears as two lines and a centerline.
It utilizes exponential moving average in its calculation as shown below:
Klinger Volume Oscillator Calculation
The formula for determining KVO is:
KVO = 34 Period EMA of Volume Force−55 Period EMA of Volume Force
Volume Force = Volume × [2 × ((dm / cm) −1)] × Trend × 100, dm = High Trend – Low Trend.
The secret to utilizing technical indicators in your forex trading is to understand Forex Volume Indicators.
You should find out why, how, and when to apply it, as explained in this article if you want to propel your forex income.