Ive been doing some reading about volume in forex and as a way of checking my understanding I´d like to ask some basic questions and allow the community to confirm or deny the truth of my statements.
First some background: As part of developing a strategy I came across an interesting indicator that has many features, but one of the most interesting features was the vertical volume indicator which showed how much volume traded at which price levels.
Its a commercial indicator, and available only on two trading platforms that Im not familiar with. The sales pitch on it states it can show trade entry and exit areas, based on the volume profile, and also highlights automatic areas of support and resistance. But I have/had a doubt about the indicator because this feature is based on volume:
Statement 1: Everyone knows that forex does not have real or true volume, because its a decentralized market and brokers do not have a view of the whole market, just their own clients trading.
True / False?
Statement 2: Tick volume is a good substitute for volume because the price would not tick up nor down if there wasnt any interest at a particular price.
True / False?
Question: Would a brokers prices still tick up or down even if their own clients were not showing any interest at a particular price? I suspect that they would, but please correct me if Im wrong.
Depending on the outcome of this discussion, I intend to try and develop my own version of the indicator 1) because its not available on the platforms / broker I have to go with and 2) there is no trial version and the costs is a little high for me at the moment.
Read this first. Understand how a market typically moves, before trying to build a strategy around it.
1- True
2- Remove the word good from your sentence and there’s your answer.
Question- Bid/Ask quotes are only available to you b/c someone is willing to buy or sell @ a current price.
The indicator you have above is something similar to the standard “Volume Profile” most order flow traders use. I’ve used it before trading futures. In FX, my opinion, it will have little value.
On the other hand- if you were trading FX futures contracts w/ ‘legitimate’ volume - completely different story.
False, as it stands. As Jake mentions above, if you remove the word “good” from it, it’s a little better. The extent to which it’s true is [B]very[/B] variable, and without a way of knowing when it’s true and when it’s not - hence the problem.
The answer to this one depends on other variables, and on what you mean by “broker”. Be aware that there are two very, very different sorts of “brokers”, as explained here.
The way to see volume, in forex, is to look at the volume in the most proximal forex [U]futures[/U] contract. The correlation with spot forex volume is enormous, and reliable enough for anyone’s everyday trading purposes (partly because of the advent of HFT/arbitrageurs). This is far, far better than looking at tick-charts. This will be [U][I]way[/I][/U] superior to the indicator you suggest, in my opinion.
First, thank you to everyone who has commented so far (ForexUnlimited, lexys, PipMeHappy). And thank you for the references to other material. To sum up, using forex future contracts would be better than tick volume. I was aware of future contracts, available from CME, but not that they were so strongly correlated to spot fx, so i obviously need to look into that.
Just to clarify, I’m not ready to trade just yet, still doing research.
Preferably an ECN broker if they have favourable terms (minimum account deposit, trading lot sizes, etc.) and absolutely one with offices in the UK and regulated by the FCA. I have one or two shortlisted already.
Having trade both extensively, I think they really are.
(If you think about all the HFT’s and arbitrage bots in the market, these days, it does actually make sense that they would be, too?).
My own solution to the issue you raise, above, was simply to switch from trading spot forex (from which I’d made a decent living for several years) to trading CME futures, just so I could use constant-volume bars and basically “not have to think about volume much, any more, because it was automatically factored in to my trading”. I did this last year, on the rather repeated and insistent advice of institutional and ex-institutional trader friends, and I promptly wished I’d taken their advice on this subject a long time earlier, when it was first offered. My own perspective (rather belatedly, in my case, because I’m hard to teach :8: ) is that you have everything to gain and nothing to lose, by doing this.
“The question of volume”, as you put it in your title, is in my opinion a question [U]hugely[/U] underrated by retail spot forex traders.
Interesting. I was just thinking about this now before I read your post, specifically, how I would integrate currency futures volume into trading spot fx. It seems there are two options on how to go forward:
Continue developing my trading strategy in spot fx, somehow using futures to determine volume
Ive done some more reading, on babypips and elsewhere, and one question keeps coming back to my mind:
There are those here who say that fx has no true volume and tick volume cannot be trusted. Some/alot of these ppl are experienced traders (judging by the honorific: “Member of FX-men”). Then there are others, equally respected, who say that tick volume can be used, e.g here
Who do I believe? Because Ive discovered getting a free futures fx datafeed is not straightforward…
which cover all.CME futures for anything from currencies to metals, to.energy and dairy, through to.financials (indexes): their charts supply volume all the way down to 5m, showing buy/sell/equal volume bars…
The interbank market clearly [I]has[/I] true volume, but equally clearly, because it isn’t centralised, there isn’t a way of [U]measuring[/U] it. Therefore, from the trader’s perspective, it has no [B][U]available[/U][/B] volume figures.
Each broker has their own volume figures, and some of these are available to their clients. How representative they might be of overall true volume is another matter.
The above statements are objective and irrefutable. It doesn’t matter whose opinion they are, or the perceived qualifications or honorifics of people mentioning them. They’re simply [I]factual[/I] and self-evident.
The expression “tick volume” is slightly misleading: tick charts [U]don’t[/U] measure or record volumes traded. They display [I]numbers of transactions[/I]. A “tick” can represent a single contract or 1,000+ contracts.
In addition to the sites mentioned above by PMH, you can get (through various brokers) an “official” CME data-feed for only $5 per month - as long as you’re not a professional trading other people’s money, in which case it’s $85 per month. There [I]are[/I] “true volume charts” for futures because they’re centralised.
Yes, I noticed in one of your posts PipMe that you refer to barcharts.com, thank you. And I did take a quick look at that site. Im trying to automate a strategy, ie, program, so I need an automatic feed. I dont know if barcharts have this, but I will take a more detailed look
Thank you for responding lexys. On this thread it was stated that tick volume is not a [I]reliable [/I]or [I]good [/I]substitute for real volume. In the post I linked to, emeraldorc reasoned that it was a good substitute, if I understood his reasoning correctly.
As a newbie who has been seriously bitten by forex in the past, I prefer to err on the side of caution and use volume in my trading, and obviously reliable volume figures. Thats why I posted.
$5? Which brokers? I looked at the CME website and it quoted me $55 for a datafeed. Im still developing my strat, it will take some time, so thats why i´d prefer a free (or resonably cheap) at the moment.
