Foreign exchange trading in the UK is a popular venture among the residents. In order to regulate the industry, the UK government has made strides by establishing the FCA (Financial Conduct Authority), a financial regulatory body.
All foreign exchange brokers should be authorized by the FCA prior to collaborating with CFD traders and operating in the United Kingdom foreign exchange market. These regulatory measures are necessary to protect traders from losing their money to unscrupulous brokers.
While many investors are familiar with buying bonds and stocks, currencies hardly feature in an investor’s portfolio. Many investors have keenly been following Britain’s poles with increasing anxiety not sure whether or not Brexit will happen.
Many investors especially those specializing in the forex markets are afraid of huge currency fluctuations as a result of the Brexit. Many factors can cause currency volatility such as political dynamics and natural disasters.
Regardless, big currency fluctuations can have a huge impact on many people and institutions. In this article, we focus on understanding how traders can leverage on volume to improve their trading.
What is Volume?
Volume is the determination of the total trading times a specific financial asset has undergone within a specific period of time. While trading is a robust tool, many forex traders in the UK often overlook it claiming that it is but a simple indicator. You can find information on volume in various sources, especially on the internet.
However, not many investors understand how to utilize it to reduce their risk and increase their profits. There is always a demand and supply demand in the currency market. Just buyers need sellers from whom to purchase shares, sellers need buyers in order to dispose of their shares.
The struggle between sellers and buyers for the ultimate price in various time frames generates short-lived price fluctuations while displaying long term fundamental and technical factors. Using volume to evaluate financial assets can help minimize risk while strengthening profits.
How to Use Volume
There are various guidelines you should abide by when utilizing volume to ascertain the magnitude of a move. These guidelines below can help you make sound trading decisions.
Debilitation Moves and Volume
In a fluctuating market, debilitation moves are displayed. Generally, these are acute price moves complete with an acute volume increase, an indication of an imminent completion of a trend.
Traders who hold on to a weak trade become anxious about losing more move piles in the market tops(top price of a security prior to the onset of a downward trend) hence debilitating the number of buyers.
Falling prices at the bottom(lowest priced arrived at by an economic circle or financial security) of the market will finally eliminate numerous traders which result in increased volumes and fluctuation.
A decrease in volume is necessitated by a trigger in the mentioned situations. However, the fluctuation of volume in the subsequent months, weeks, or days, can be calculated with different volume guidelines.
Market and Volume Interest
A soaring market should display a soaring volume. Buyers need developing enthusiasm and numbers in order to propel the prices higher. Ascending prices and descending volume indicates an interest deficiency which warns of an impending reversal.
This concept simply means that a price increase or drop on minimal volume is a weak signal while a price increase or drop on massive volume is a robust signal which indicates a vital change in the stock.
Volume plays a major role in analyzing bullish signs. For instance, assume volume increases at the decline of a price followed by a price increase, then a move back lower. Assuming the move back lower price remains higher compared to the preceding low and volume is reduced on the second low, this is often referred to as a bullish sign.
Volume indicators are visually represented analytical formulas in some of the popularly utilized platforms. There is a different formula for each indicator. Traders should, therefore, establish the one that resonates best with their market approach. While indicators are not necessary, they can help traders make robust trading decisions. If you are aspiring to venture in forex trading, begin practicing on a demo trading account in order to hone your trading skills.