Forex for a trader
How to create volume profile forex

How to create volume profile forexHow to trade with volume profile. By Jean Folger | January 15, 2015. In a previous article, we introduced key concepts in volume profile and the various trends that emerge throughout a trading session. With today’s advanced charting platforms, virtually any trader can access this type of market analysis to identify where (price) trading activity took place and how much (volume) trading took place at each price level. Here, we take a closer look at the volume profile and explain how it can be used to identify trade entries and exits. Volume profile review Many traders are used to viewing volume as a histogram beneath a price chart. This approach shows the amount of volume traded during each price bar, whether it’s a time-based bar (such as one-minute) or an activity-based bar (such as 144-tick or 2000-tick volume). While this is a popular way to analyze volume, knowing where the volume occurs—in terms of price, rather than time—can be more meaningful. Volume profile, plotted on the vertical axis of the price chart, does just that: It shows how much trading activity has taken place at each price level touched throughout the trading session. Why is this helpful to traders? Volume profile points out the prices that have been favored by the market as well as those that have been ignored, which can give traders clues about where price is likely to go in the near future.

Volume profile updates every time a new trade order in the market is filled, and the point of control, value area, high volume nodes and low volume nodes all change numerous times throughout a given trading session—especially on actively traded instruments—as more volume activity is recorded. As volume profile develops throughout the trading session, new patterns and trading opportunities emerge. For instance, at 11 a. m., following the morning push, the point of control may be located at the top of the chart (towards the session high), only to be replaced later in the session with higher trading volume moving the point of control to a price centered on the chart. For active traders, it is the developing volume profile that is most relevant. The volume profile at the end of the day will show the history of volume, but not the patterns that could pinpoint trading opportunities during an active trading session. It is this constant evolution of the volume profile during a trading session that can help form trading decisions. In 1982 Peter Steidlmayer, a Chicago Board of Trade Member and Mike Boyle, the Vice President of Technology at the Exchange developed a vertical graphic that captured and demonstrated the market dynamics of price and volume over the course of the trading day. Price and volume data are presented in a logical and visual manner. This original vertical graphic is now described as the market profile chart. This new way of looking at market data allows traders to organize and make sense of real time information. Market Profile provides traders with an X ray vision into market activity. The first key advantage of the profile chart is that, it provides traders with the best real time view of market activity. The profile chart when combined with other indicators gives an xray view into the market. A trader can actually see exactly what is happening in the market as it happens.

Once you are able to understand what is happening in the present, you are able to make far better decisions about what might happen in the future. Here are other key features of this professional trading tool: The Market Profile forces traders to understand the market dynamics Market Profile identifies where value is in the market Market Profile works in all Market Conditions Market Profile is effective for both swing and day trading Market Profiling is effective for trading futures, stocks, options, and forex. Here at the Market Profile Trading Academy we teach students how to use Market Profile tools to define risk and build a narrative focused on pinpointing high probability entries, exits, potential price action. Day Trading Without Charts – Volume Profile In Action. When most people hear about day trading without charts, it conjures up images of other feats of derring-do – boxing with one arm tied behind your back, tightrope walking blindfolded, and bringing a knife to a gunfight all come to mind. Are we discussing a feat possible only by the fearless few, or is it possible that Day Trading Without Charts is something that is quite straightforward? The fact is we are conditioned to use charts because every trading book, course, and educational forum is focused on charts. The downfall of charts is that they can be misleading in terms of where people’s positions lie. If we aren’t using charts, then what information are we using? What we are looking at is “Volume at Price,” also known as “Volume Profile,” which is the total number of contracts traded at each price for the current trading session. Consider the following scenario. Image 1 – Chart and Volume Profile Perspective. In traditional chart-based analysis, the swing low and swing high would now be considered potential support and resistance. The volume profile, on the other hand, tells a rather different story. We can see that the top five prices have very few contracts traded; there are very few positions there.

Similarly, the bottom four prices have very few contracts traded. The significant areas are those where the majority of trading took place. The 22,000 contracts at the top of the high-volume area of the volume profile are far more significant than the 23 contracts traded at the highest price. Before we go any further, we need to consider what those numbers represent. They represent trades of course. A trade occurs when a buyer is matched with a seller. So the 22,000 contracts traded means 22,000 sold and 22,000 contracts bought. We also have to consider the fact that not all of the buyers and sellers have the same trading horizon or goals. So, of the 22,000 buyers and sellers, some will be: People Closing Positions. Those traders are off our radar, we don’t care about them; they will not be forced to react to price moves in the short term. Long-Term Positions . (longer than intraday) We really don’t care about these traders. They also will not react to short-term price fluctuations. They are establishing long-term positions and won’t be reacting to intra-day fluctuations, unless there is a major correction. ArbitrageSpread Traders .

These traders will be in and out intraday, but their positions straddle two or more markets. They are trading the relationship between these markets, so they are watching that relationship and not reacting to fluctuations in just one of the markets in their trade. Short-Term, Intraday Traders . This represents the bulk of trading in many markets. Certainly in US Index futures. These traders will react to short-term price fluctuations and their reactions are reasonably predictable and quite visible. This is somewhat of a simplification, but, basically, we can forget about long-term traders and arbspread traders because they don’t react predictably to short-term price fluctuations. Neither do traders that just got out. It is the positions of short-term, intraday traders that will set the tone for intraday moves. Of course, sometimes there will be one-way, high-volume-news driven days where institutional buyingselling is driving price in one direction.

These are the minority, and we all know what to do on those days anyway (no, not fade the move until you empty your account). Let’s consider the image above once more. We can see a lot of volume traded over 9 prices. From the 22,000 at the top of the high volume area to the 5,000 at the bottom, there’s 259,000 contracts traded. Some will have been in and out, but there are still a lot of intraday traders positioned in that area both long and short. If we look at the push through the top of the high volume area, do we see any evidence that one side has given up or stopped out? Well, no. If we look at the amount of contracts traded there, it’s less than 1,400. If we have hundreds of thousands of short positions in an area and the shorts get stopped out, they will do some by buying to cover. That buying will drive price up violently, so we’d expect to see a larger move up with more volume per price. In this situation, the shorts are still in. As we return to the top of the high volume area, the most likely scenario is that we will fall back into that range, traverse to the other side, and then find support at the low of the high volume area. Lots of traders have been comfortable trading in that area and there’s no sign any have been stopped out. Let’s consider at a slightly different scenario … Image 2 – Stop Run. In this case, we can see a larger pop through the top of the high-volume area with a lot more contracts traded in the move up. These stop runs have certain characteristics – the move itself will be rapid; the number of contracts traded at each level is set by the size of the offers there; they get hit before they can move out of the way. You are looking for a fast pop up that takes out the offers. It’s not a slow lazy push through the top. We already said that in the high volume area, we have positions both long and short.

Now that we have had a fast pop through the top, some of the shorts are out of their positions. The remaining shorts are nervous. The longs, well they are just fine. Think of how you’d feel right now if you’d seen that rapid move through the top. If you were long , you’d be happy; you might have even scaled off some of your position. You may now be considering the possibility of an additional move up. If you are still short , you are not happy at all, you didn’t get out of your position and price has moved up. You are now fingers-crossed, hoping it’ll come down. Not so you can profit, but so you can get out of the position. If you were short and you got stopped out , well your attitude ranges from “I’m fine with that” to “I’m a dumbass,” depending on your level of experience and how well your short followed your game plan. There is one thing that 99% of people on the short side are not thinking right now and that is “If it comes back down, I’m going to short some more.” Some will relish the chance to buy-to-cover at break even or a little worse to exit their position; some will be sulking because of their loss; and the more pragmatic losers will simply be looking for the next opportunity, not sticking doggedly to the opinion that just caused a loss. This isn’t so much trading psychology as understanding the process of speculation. After the stop run, we will fall back and sellers just won’t be interested. We often fall back to the tick above the high-volume area and there’s just no selling.

The high-volume area and subsequent stop-run cause a “future imbalance” in trading behavior which favored the buy-side. An area where there was a good chance that sellers would shy away, where buyers might even add to their position. Don’t take my word for this. You can watch it happen every day. This sort of analysis requires a shift in perspective from considering where price has been to where people are positioned, where people lost money and how that may impact their decision making in the short term. Peter Davies is the founder of Jigsaw Trading . For more information, please click here . Note: If you are interested in Volume Profile, read Dr. Kenneth Reid’s daily futures article in TraderPlanet’s Markets on the Move section. 3 Ways to Improve a Strategy Using Real Trading Volume. Your Forecast Is Headed to Your Inbox. But don't just read our analysis - put it to the rest. Your forecast comes with a free demo account from our provider, IG, so you can try out trading with zero risk. Your demo is preloaded with ?10,000 virtual funds , which you can use to trade over 10,000 live global markets. We'll email you login details shortly. You are subscribed to Rob Pasche. You can manage you subscriptions by following the link in the footer of each email you will receive.

An error occurred submitting your form. Please try again later. Using volume to confirm breakouts Using volume to confirm trends Using volume to identify reversals. For traders coming from other markets, you know the importance volume has when making trading decisions. But for years, volume has been more or less rejected by Forex traders because it has been so hard to come by. There is no central exchange for currency transactions, so there is no perfect way to measure the amount of volume actually being traded. But with FXCM's Real Volume indicator, we can now get a sense of the amount of trading volume that is occurring on all major pairs. This is great for Forex traders, because we can now add volume analysis to our trading arsenal. In this article, we will learn 3 ways we can use volume in 3 different types of trading situations. Volume Can Confirm Breakouts. One of the greatest fears for breakout traders is encountering a false breakout. This is when price breaks a major support or resistance level, but then crosses back to its original side. To mitigate falling for a false break, traders often wait until the current candle actually closes beyond the support or resistance level before placing a trade. This is a good technique. But another way we can confirm a breakout is by using volume.

During a breakout, it is common to see a spike in volume. An increase in volume represents a larger amount of participants that "agree" with the breakout that is occurring and can actually act as confirmation that price could continue to move in the direction of the breakout. For an in-depth discussion on using volume to confirm breakouts, I recommend reading my previous article . But for a quick example, I have copied the chart we see below. Learn Forex: Volume Steady During False Breaks, Spikes During Real Breaks. (Created using Marketscope 2.0 charting package ) The 3 horizontal lines represent support and resistance levels that have been drawn based on swing highs and swing lows, and the red and green boxes represent times when price broke through those levels. However, not all of these breakouts had price follow through. Some of them were false breakouts. We can see that the two breakouts that could have resulted in great breakout trades, occurred when volume was dramatically higher than the candles around them. If we only trade breakouts when volume is elevated, this could increase our likelihood of finding better opportunities. Volume Can Confirm Trends. Our next use for volume is valuable for traders that trade trend strategies.

I already mentioned earlier how an increase of volume means there are a greater number of market participants in agreement about the price movement it coincides with. The same applies when market begins trending in a primary direction. During a strong trend, we commonly see volume increase when price is moving in the direction of the trend, and volume decrease when price is moving counter to the trend. When this occurs, it can act as a signal to traders that the trend is more likely to continue. The greater the disparity in volume during trend and countertrend moves, the stronger the trend. In a previous article , I go more in depth into looking for these opportunities and I've pictured one of these opportunities below. Learn Forex: Volume Increasing with Trend, Decreasing When Countertrend. We can see that each time price is moving up (in the direction of the trend), volume is increasing, and when price is moving down (countertrend), volume is decreasing. If we find this on our own charts, we should feel more confident placing trades that are in the direction of the trend until we see increased volume during a countertrend move (or breakout).

Volume Can Identify Reversals. The final situation when volume can be helpful is during potential reversals. Playing off the previous chart when we had a strong trend, trends will not last forever. At some point, trends will always reverse. But timing a reversal can be very difficult and very costly when we are wrong. The way that volume can be used to assist us in identifying reversals, is by looking for times when volume is decreasing at the same time that the trend is beginning to stall. Learn Forex: Volume Decreases While Priced Tested Resistance, Then Reversed. In the chart above, we see an uptrend in a stalling pattern where price is not able to break to a new high. During this sideways movement, volume begins to dip lower and lower which could indicate that traders are uncertain that the uptrend will continue. As soon as we see price break to a new swing low, we see volume sky rocket, confirming the reversal. For more information on using volume to identify reversals, click here . ---Written by Rob Pasche.

Interested in learning more about Forex trading and strategy development? Signup for a series of free guides, to help you get up to speed on a variety of trading topics! Register HERE. DailyFX provides forex news and technical analysis on the trends that influence the global currency markets. First-hand Forex trading experience and information about foreign exchange market that will be useful to traders. Subscribe to get daily updates directly to your email inbox. How to Use Market Profile in Forex Trading? Market Profile indicator is a powerful tool developed by a CBOT trader. Its original purpose was to graphically organize price and time information obtained during a trading session in a manner useful to traders.

Today’s Forex market is quite different from what commodity futures trading was back in 1985 when Peter Steidlmayer introduced his charting instrument to the public. Can Market Profile be a useful tool to Forex traders? In my opinion, it can. The main difference in today’s currency market and the futures market of 80’s is the lack of daily trading sessions. Fortunately, it does not produce any real problem. The lack of strict daily close and daily open can be compensated by one of the following methods: A rolling 24-hour window for Market Profile calculation. Each new bar, the Market Profile calculation window is shifted right by one bar as well. This way, a trader is always looking for the graphical profile of the recent 24 hours of trading. Unfortunately, this would require a complete recalculation of the whole curve with every new bar arriving. Smaller geographically-bound time windows. The Forex market operates through several widely recognized trading sessions. The most prominent of them are: London, New York, and Tokyo. A trader operating mainly inside the New York trading session could use a 10-hour window based on the NY open and close to calculate and display Market Profile. A trader operating within a mix of New York and Asian sessions could use the span of both. The good thing is that with this method, the calculation process is much simpler than with a rolling window.

The bad thing is that it ignores all the market data that is left outside the target trading sessions. Weekly trading sessions. Unlike days, the weeks in Forex are clearly defined. The minor difference of SundayMonday open and FridaySaturday close between different brokers and liquidity providers is small enough to ignore (one or two hours of thin-volume trading). Weekly Market Profile is easy to calculate and offers a lot of data to traders. However, it is rarely suitable to short-term intraday traders, less so to scalpers. Apparently, it is still possible to apply Market Profile to modern foreign exchange market. The most consistent approach in our case seems to be the third one, which is based on weekly sessions. Another important issue to solve when using this indicator in analysis is whether to apply it to the current session — and suffer from the lack of data during the early hours — or to the previous session, which could be based on stale data. In reality, this is no issue at all. As outlined in CBOT’s A Six-Part Guide to Market Profile, the most important profile is based on the current session, but the profile built during the previous one is also relevant and should be analyzed by a trader. Moreover, it is possible (and useful) to look on several previous profiles at once, looking at how the trend developed across more than one value area.

Multi-session Market Profile analysis is also a key to detecting long-term areas of balance or detecting states of imbalance. In fact, long-term traders should be looking at Market Profiles of many sessions to determine possible points of entry and exits. The following example shows Market Profile calculated for six weekly sessions of the EURUSD currency pair: As the indicator’s author stated, the Market Profile should not be used as a buysell signal generator. It is a tool for analyzing the market and getting information, which is not evident from the bare chart. Here is how the main parts of the Market Profiles can be used in Forex trading: Value area — the area of market acceptance. The price spent a hefty amount of time at those levels — the market likes it. The edges of the value area form strong support and resistance levels. Median — the middle of the value area offers a strong pivot point. It serves both as the attractor for the price and as the bounce level. The median is also called a fair price . If market is below the level, it is considered undervalued . If it is above the median, it is overvalued . Areas of low volume — long tails below and above the value area show the price areas rejected by the market. Bottom tail is telling us of long-term buyers outperforming long-term sellers at those price levels. Top tail is telling us about the long-term sellers doing better than buyers at the respective price levels.

I am not a regular user of Market Profile indicator. My main trading strategy is based on a different concept (chart patterns) while my other strategies are either automated with expert advisors or use fundamental indicators. Still, I do consult the long-term market profiles in times of doubt when I lack accurate information on where to put my entry order, take-profit , or stop-loss . Volume Profile is an advanced charting study that displays trading activity over a specified time period at specified price levels. The study (accounting for user defined parameters such as number of rows and time period) plots a histogram on the chart meant to reveal dominant andor significant price levels based on volume. Essentially, Volume Profile takes the total volume traded at a specific price level during the specified time period and divides the total volume into either buy volume or sell volume and then makes that information easily visible to the trader. TYPICAL LEVELS OF SIGNIFICANCE. Support and Resistance Levels. The first thing that most traders will use volume profile for is identifying basic support and resistance levels. It is important to note that using Volume Profile as an identifier for support and resistance levels is a reactive method. This means that unlike proactive methods (such as trend lines and moving averages) which are based on current price action and analysis to predict future price movements, reactive methods rely on past price movements and volume behavior. Reactive methods can be useful in applying meaning or significance to price levels where the market has already visited. Basic technical analysis has shown that a support level is a price level which will support a price on its way down and a resistance level is a price level which will resist price on its way up. Therefore, one can conclude that a price level near the bottom of the profile which heavily favors the buy side in terms of volume is a good indication of a support level. The opposite is also true. A price level near the top of the profile which heavily favors sell side volume is a good indication of a resistance level.

High Volume Nodes (HVN) are peaks in volume at or around a price level. HVN can be seen as an indicator of a period of consolidation. Usually there is a great deal of activity on both the buy and sell side and the market stays at that price level for a great deal of time compared to other levels in the profile. This can imply a “fair value area” for the asset. When price approaches a previous HVN (or fair value area) a sustained period of sideways movement is expected. The market is less likely immediately break through that price. Low Volume Nodes (LVN) are the opposite. They are valleys (or significant drops) in volume at or around a price level. Low Volume Nodes are usually a result of a breakout rally or a breakdown. During a rally or a breakdown, there will typically be an initial burst of volume and then a significant drop off. The drop off can imply an “unfair value area” for the asset. When price approaches a previous LVN (or unfair value area), the market is much more likely to rally through or bounce off of that price level. Because it is seen as an unfair value area, the market will not spend as much time there compared to some other levels in the profile. Just like with most other tools or studies, Volume Profile has a number of uses. There are many trading strategies out there using Volume Profile as a key component.

Below are the basics of one such strategy which is based on comparing the current day’s opening price to the previous day’s Volume Profile. - If the current day opens above the previous day’s value area (but still below the Profile High) look for price to retrace back towards the Point of Control and then proceed to rise (the direction of the day’s open). Therefore during the retracement to the Point of Control, there is a buying opportunity. - If the current day opens below the previous day’s value area (but still above the Profile Low) look for price to retrace back towards the Point of Control and then proceed to fall (the direction of the day’s open). Therefore during the retracement to the Point of Control, there is a selling opportunity. - If the current day’s opening price is completely outside of the previous day’s profile (above the Profile High or below the Profile Low) this can be seen as a possible runner in the direction of the opening price relative to the previous day’s profile range. Volume Profile is an extremely valuable technical analysis tool that is used by traders everywhere. The key to Volume Profile’s continued relevancy is its versatility. It is a charting tool that truly does have a wide array of uses. Unlike many other studies, there is little to no debate about Volume Profile’s usefulness. The data that is provided by Volume Profile is indisputable, leaving it to the trader to find new and creative ways to use it. Even though in its simplest form, it is a great reactive method for discovering traditional support and resistance areas, traders are still coming up with ways to chart the indicator in predicative or proactive ways. Consider the trading strategy example given earlier in the article. Being able to compare a real-time event (the current day’s open) with historical events (the previous day’s volume profile) and make a trading decision based on the relationship is a great example of this. HOW TO USE WITH TRADINGVIEW. Navigate to tradingview.

com On the landing page, enter a symbol and click "Launch Chart" Within the Toolbar along the top of the chart select "Indicators" and choose the one you would like to add to your chart. Volume Profile has three different options for the type of Volume Profile you wish to use. Fixed Range - Allows the user to click and drag on the chart to select their own custom time range. Session Volume - Shows the Volume Profile of every trading session. Visible Range - Shows the Volume Profile of everything visible in the chart. Will scale automatically when scrolling. To make changes to your Indicator you will need to access the Formatting Window. You can access the Formatting Window by either clicking on the Blue "Format" button in the Chart Header next to the Indicator name, or by right clicking on the Indicator in the chart itself and selecting "Format". The number of rows to be calculated and shown. Toggles between showing total volume for each row or splitting each row into buys and sells. Toggles the visibility of the indicator. Alters the width of the rows. Place rows either left or right. Toggles the visibility of the actual numbers of buys and sells for each row. Determines the text color. Determines the color as well as opacity for the Up Volume (Buys). Determines the color as well as opacity for the Down Volume (Sells).

Last Value on Price Scale. Toggles the visibility of the indicator's name and settings in the upper left hand corner of the chart. Scales the indicator to either the Right or to the Left. Forex Can Have Volume Profile by Using Tick Volume and TradingView Should Do It! I'm completely sold on TradingView, simply because of the HTML5 charting and the inclusion of volume profile. We're an investment firm utilizing volume profile heavily, although in forex. You say; Forex and index symbols don't have volumes, because they are not traded on any particular exchange. That's true, but forex has tick volume, and since I've been using and studying market profile for years, I've done the research on tick vs. actual volume in spot forex. There is no difference in the levels that you can extrapolate from the Euro FX futures profile (built with CME volume), vs. the spot EURUSD profile (built with tick volume). The proof is in the chart I've included, which is from my firm's MetaTrader 4 platform.

All FX shops, including ours, can only show tick volume in MT4, and this profile chart shows a great example of tick volume profile. You have the ability to show tick volume in volume profile view for forex, and if you do it, you will be opening up to a huge market segment of forex volume profile traders. Please consider including this! In addition, your only current solution to get any volume profile for forex would cost over $1,200 because you would need a $90month subscription to CME Futures. Exploiting the Volume Profile. In the last article in the series, we discussed robust trading ideas, comparing moving averages with a channel breakout strategy, showing how the latter is of much greater value and how using a moving average system may show great results in back testing but can be fatally flawed in actual trading. The channel breakout strategy, while having less impressive performance statistics during ‘in sample’ testing, showed robust performance over time, with the same parameters providing a robust edge, over time. The reason that channel breakout systems have stood the test of time is likely because markets trend in the long term and a new multi-month high is always going to have much more psychological significance than the crossing of two arbitrary moving averages. The findings strongly support the argument that any system based on predictable market behaviour, is likely to be much more robust than one based on arbitrary mathematical algorithms. Therefore, in this article we are going to explore another exploitable aspect of predictable behaviour in the markets, which is much shorter term in nature; namely when traders start and end their trading day. This has been exploited in the futures markets with strategies such as the opening range breakout. Volume and Time of Day. Monroe Trout, who famously made billions out of systematic trading, made some interesting observations about the futures markets when asked about the most liquid times of day, in his interview in ‘The New Market Wizard’ by Jack Schwager. “The most liquid period is the opening.

Liquidity starts falling off pretty quickly after the opening. The second most liquid time of day is the close. Trading volume typically forms a U-shaped curve throughout the day… Generally speaking those patterns hold in almost every market. It’s actually pretty amazing.” How to Create a Simple Forex EA Using the MetaEditor Wizard. Greetings, earthlings! I’m back with another article on the basics of creating a forex expert advisor. But before we dive right into the wonderful world of coding, let’s start with a little assistance from the Gandalf of forex robots… the MetaEditor Wizard! I wish I could say that this particular wizard comes in gleaming white robes and has a magic-wielding staff, but it simply looks like this: Now this little pop-up window may not look like much, but I assure you that it’s as powerful as a wizard gets. With this tool, you can create simple forex expert advisors that can automatically analyze technical indicators or execute trades without having to write a single line of code yourself. All you need to do to summon the wizard is face northeast, clap your hands three times, and chant…

Oh wait, that one’s for triggering a market crash. We don’t want that. To access the MQL Wizard, just open MetaEditor on your trading platform then click “New” on the upper left side: Select “Expert Advisor (generate)”, which is the second option in the pop-up window then click Next. On this screen, you can set the general properties of the EA, such as the name, author, and link to the source. The system parameters, which basically are your labels for the currency pair and time frame, are already set by default. Don’t worry about these inputs just yet! These default settings indicate that the EA can be applied to the current currency pair and time frame. We’ll delve into the details later on. Next, you will have to set the signal properties of your expert advisor. You can choose from the set of technical indicators already included in the MetaTrader platform, such as good ole moving averages or MACD, and even have a combination of up to 64 indicators! To add an indicator, just click Add then input the necessary fields in the pop-up window.

In this example, I’ll just make use of the 100 SMA and leave the rest of the default parameters as is. Just double click on each field to edit its name, value or type. The next step should allow you to determine the trailing stop for your forex EA. You can decide to base it on a fixed number of pips, use a technical indicator, or not have one at all. In this example, I won’t be adding a trailing stop just yet. Lastly, you can set the risk management rules by deciding to trade with a fixed volume, margin, or risk percentage. Under the fields for parameters, you can specify the percentage risk or the lot size per trade. In this example, I’d like to trade with a fixed risk of 1% of my account on each trade, as most of my trading buddies do. Before you hit the Finish button, take a deep breath and make sure you’re ready to have lines of code thrown at your face. Ready? Okay, I’ll hold your hand. 3… 2… 1… And there you have it! Just hit Compile or F7 to make sure that your code is error-free. Now go and impress your date by humble-bragging that you’ve learned to write hundreds of lines of code overnight, no biggie. Next week, we’ll take a closer look into the structure of a forex expert advisor and how functions are executed.

Stay tuned! How to Use Volume to Improve Your Trading. Volume is a measure of how much of a given financial asset has been traded in a given period of time. It is a very powerful tool but is often overlooked because it is such a simple indicator. Volume information can be found just about anywhere, but few traders or investors know how to use this information to increase their profits and minimize risk. TUTORIAL: Analyzing Chart Patterns. For every buyer, there needs to be someone who sold them the shares they bought, just as there must be a buyer in order for a seller to get rid of his or her shares. This battle between buyers and sellers for the best price in all different time frames creates movement while longer-term technical and fundamental factors play out. Using volume to analyze stocks (or any financial asset) can bolster profits and also reduce risk. (See also: Technical Analysis: The Importance of Volume .) Basic Guidelines for Using Volume.

When analyzing volume, there are guidelines we can use to determine the strength or weakness of a move. As traders, we are more inclined to join strong moves and take no part in moves that show weakness – or we may even watch for an entry in the opposite direction of a weak move. These guidelines do not hold true in all situations, but they are a good general aid in trading decisions. Volume and Market Interest. A rising market should see rising volume. Buyers require increasing numbers and increasing enthusiasm in order to keep pushing prices higher. Increasing price and decreasing volume show lack of interest, and this is a warning of a potential reversal. This can be hard to wrap your mind around, but the simple fact is that a price drop (or rise) on little volume is not a strong signal. A price drop (or rise) on large volume is a stronger signal that something in the stock has fundamentally changed. (For more, see Market Reversals and How to Spot Them .) Exhaustion Moves and Volume. In a rising or falling market, we can see exhaustion moves. These are generally sharp moves in price combined with a sharp increase in volume, which signal the potential end of a trend. Participants who waited and are afraid of missing more of the move pile in at market tops, exhausting the number of buyers. At a market bottom, falling prices eventually force out large numbers of traders, resulting in volatility and increased volume.

We will see a decrease in volume after the spike in these situations, but how volume continues to play out over the next days, weeks and months can be analyzed using the other volume guidelines. (For related reading, take a look at 3 Key Signs of a Market Top .) Volume can be very useful in identifying bullish signs. For example, imagine volume increases on a price decline and then the price moves higher, followed by a move back lower. If the price on the move back lower stays higher than the previous low and volume is diminished on the second decline, then this is usually interpreted as a bullish sign. Volume and Price Reversals. After a long price move higher or lower, if the price begins to range with little price movement and heavy volume, this often indicates a reversal. (See Retracement or Reversal: Know the Difference for additional information.) Volume and Breakouts vs. False Breakouts. On the initial breakout from a range or other chart pattern, a rise in volume indicates strength in the move. Little change in volume or declining volume on a breakout indicates lack of interest and a higher probability for a false breakout. (See also: The Anatomy of Trading Breakouts .) Volume should be looked at relative to recent history. Comparing today to volume 50 years ago provides irrelevant data. The more recent the data sets, the more relevant they are likely to be. Volume indicators are mathematical formulas that are visually represented in most commonly used charting platforms.

Each indicator uses a slightly different formula, and therefore, traders should find the indicator that works best for their particular market approach. Indicators are not required, but they can aid in the trading decision process. There are many volume indicators, and the following provides a sampling of how several of them can be used. On-Balance Volume (OBV): OBV is a simple but effective indicator. Starting from an arbitrary number, volume is added when the market finishes higher, or volume is subtracted when the market finishes lower. This provides a running total and shows which stocks are being accumulated. It can also show divergences, such as when a price rises but volume is increasing at a slower rate or even beginning to fall. Figure 5 shows that OBV is increasing and confirming the price rise in Apple Inc's (AAPL) share price. (For more on the OBV, see On-Balance Volume: The Way to Smart Money .) Chaikin Money Flow: Rising prices should be accompanied by rising volume, so this formula focuses on expanding volume when prices finish in the upper or lower portion of their daily range and then provides a value for the corresponding strength. When closes are in the upper portion of the range and volume is expanding, the values will be high; when closes are in the lower portion of the range, values will be negative. Chaikin money flow can be used as a short-term indicator because it oscillates, but it is more commonly used for seeing divergence. Figure 6 shows how volume was not confirming the continual lower lows (price) in Apple stock. Chaikin money flow showed a divergence that resulted in a move back higher in the stock. (For related information, see Discovering Keltner Channels and the Chaikin Oscillator .

) Klinger Volume Oscillator: Fluctuation above and below the zero line can be used to aid other trading signals. The Klinger volume oscillator sums the accumulation (buying) and distribution (selling) volumes for a given time period. In the following figure we see a quite negative number – this is in the midst of an overall uptrend – followed by a rise above the trigger or zero line. The volume indicator stayed positive throughout the price trend. A drop below the trigger level in January 2011 signaled the short-term reversal. The price stabilized, however, and that is why indicators should generally not be used in isolation. Most indicators give more accurate readings when they are used in association with other signals. (See Trend-Spotting With the AccumulationDistribution Line for more.) Volume is an extremely useful tool, and as you can see, there are many ways to use it. There are basic guidelines that can be used to assess market strength or weakness, as well as to check if volume is confirming a price move or signaling a reversal. Indicators can be used to help in the decision process. In short, volume is a not a precise entry and exit tool – however, with the help of indicators, entry and exit signals can be created by looking at price action, volume and a volume indicator. (For additional reading, take a look at Interpreting Volume for the Futures Market .

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