Volume Price Level Trading - MT4/MT5 Resources

Volume and price level trading

Volume is a commonly used tool among traders, but most people focus on volume over a period of time. When you plot volume against price scale, a completely different picture emerges. Some prices have a lot of trading volume, and some prices have a much smaller volume.

Volume and price level trading is not new, in fact, it is as old as futures trading and even the stock market itself. Long before computers, the only stock tickers... well... were price and volume tapes. Many people believe that Forex trading volume is a meaningless indicator because it only indicates the trading volume of a broker. There are two problems with this argument. First, indicators are effective because they extrapolate historical price data, and traders then use this information to make trades that influence price movement. Second, volume is not an indicator.

Volume typically leads price and is the only tool that does not extrapolate historical data (i.e. market movements) to determine results. Volume is price action. The impact on price is that high volumes tend to attract or act within price ranges around price levels. High trading volume indicates high market interest in price levels, and low trading volume indicates low market interest in price levels.

The market requires that for every buyer there be a seller. Forex is not about random price movements. Prices change because someone is selling and someone is buying at a certain price. The more popular the price is for buyers and sellers, the higher the volume.

Forex trading volume is a broker's quoted trading volume data from its own database. This means that trading volume is recorded per trade, 1 trade, 1 trade volume. Volume is not the number of transactions. The reality in Forex is that everyone sees the same prices, everyone uses the same indicators, and the reason volume works between brokers is that the market makes the same decisions no matter which broker they use. The end result is that the volume increase or decrease for any broker is relatively the same at every price level because market interest is the same at every price level. This has been proven time and time again by traders using multiple brokers, comparing brokers, using multiple broker sources, etc. Volumes will not be exactly the same, but their relative movement to price will be the same.

Price levels are like a magnet, price candles are the bars that are attracted to the magnet, and volume is the strength of the magnet. The stronger the price level, the stronger the attraction to it. The price will bounce around a strong price level and it will be difficult to break away from it. Try moving an iron rod attached to a magnet...it's hard to move, but once the rod is away from the magnet, it's much easier to move.

When price levels are weak, there is nothing to hold prices at a fixed level and prices are likely to fluctuate more violently and faster. Iron rods pass easily through weak magnets, but stick when they hit strong magnets.

Transactions in the market are largely predetermined. There is a price level at which buyers and sellers converge. This means that if you look at price and volume, you are not looking at what happened in the past, but at where the market is going. Once you find a strong price level, you can trade between that price level knowing that price will be attracted back to that price level.

Volume-price trading is not a system in the traditional sense. It's reading the market. However, many price/volume movements are repetitive and predictable. What must never be forgotten is that we trade price levels and we are also looking for where the most attractive prices will be.