Friedberg Direct - Volume Indicator

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EDUCATION : VOLUME INDICATOR

How The Volume Indicator Works

The Volume indicator is a proprietary volume indicator created to meet the needs of traders who have traditionally used volume to generate trade signals in other markets as well as those who are looking for that additional unique trading edge. It is commonly known that volume data in the FX spot market is hard to come by because of the lack of a central exchange that collects and records all of the data. We have gained access to a lot of speculative positioning data that could be used as a gauge for overall volume from one of the largest retail market makers in the industry.

As many traders may know, volume has been a critical component of technical analysis since the beginning of the discipline. In fact some traders believe that volume is even more important than price as an area of study for technicians. The premise of classic technical analysis is that volume precedes price and can be used as valuable confirming indicator on both breakouts and retracements.

The volume indicator will help you determine whether there is a:

1. Slow accumulation into a move

2. Reversal pending

3. Strong Trend

What am I looking at?
There are 3 major components of the volume indicator report that you want to use:

1. % Change: Represents the weekly change in volume

2. Volume / Average: The ratio represents how much the current volume is above or below
the average volume.

If the ratio is less than 1.0, it means that the current volume is below the average volume

If the ratio is greater than 1.0, it means that the current volume is above the
average volume

3. Change in Net Positioning: The change in the total difference between long positions and
short positions

How can I use this?
The components of the volume indicator must be used collectively with price action in order for you to understand what is going on in the market. These are the combinations that you should be looking for and their accompanying signals:

1. Prices are breaking out of a consolidation, you see: ↑ % Change, Volume/Average > 1.0,
↑ Net Positions = Strong Breakout

**However if prices are breaking out of a consolidation and any one of the above components are not pointing upwards then, be weary of whether the breakout is really a strong breakout. Particularly if the Volume/Average is less than 1.0

2. Prices are continuing to trend and you see:

↑ % Change, Volume/Average > 1.0, ↑ Net Positions = Strong Trend

↓ % Change, Volume/Average > 1.0, ↑ Net Positions = Slow Accumulation

↓ % Change, Volume/Average < 1.0, ↑ Net Positions = Possible Reversal

↑ % Change, Volume/Average < 1.0, ↓ Net Positions = Possible Liquidation

↓ % Change, Volume/Average < 1.0, ↓ Net Positions = Range Trading Phase

In case of a breakout, technically oriented traders will assign much greater weight to price moves that are accompanied by large volume. The underlying assumption is that high volume in conjunction with a price move indicates a true change in demand is therefore much more likely to create a continuation move. Conversely, in case of retracements if the countertrend move occurs on small amount of volume, then the chances of resumption of trend increase exponentially. Therefore, in case of both trend and countertrend movements volume can be a vital clue to the true nature of price direction.

What about the trading signals?
The trading signals are directional signals that are based upon 3 different components; current price vs. previous week's price, current volume over average volume and the change in net positioning. The signal is mechanical and based upon predetermined proprietary parameters.

VOLUME FORECAST SUMMARY (Weekly Numbers):

EURUSD
Need to see a bigger increase in net positions before recent sell-off can become a new trend

USDJPY
Fall in volume suggests slow accumulation. On the look out for trend reversal

GBPUSD
Rising volume and increasing net positioning signal strong bear trend

USDCAD
Falling volume and higher net positioning signal slow accumulation. Looking for exhaustion

EURUSD
Trading volume has been above the average over the past 2 weeks signaling that the recent sell-off in the EUR/USD has been met with active participation. The combination of rising volume, lower close price and slightly higher net positioning suggests that momentum is on the side of Euro bears. However, based upon volume this move lower cannot be dictated as the beginning of a new trend until we see net positioning rise more substantially.

USDJPY
The latest break higher in USDJPY above the 119 level has been fueled by rising net positioning but falling volume. This suggests that we may be in a period of slow accumulation. Should net positioning also begin to fall then we would be on the look out for a trend exhaustion. For the time being though, slow accumulation remains the theme.

GBPUSD
Higher than average volume and rising net positioning confirm the current reversal in the GBPUSD. A break below 1.7560 will open the door for a move down to 1.7400. Unless we see either volume or net positioning begin to fall, the GBPUSD is strongly bearish.

USDCAD
Below average falling volume and rising net positioning point to a period of slow accumulation in USDCAD. Right now the downtrend remains dominant but given the slope of volume, there are more and more signs of a potential near term bottom. We will however need to see net positioning fall as well before moving to a neutral bias.

These services are being made available exclusively to Friedberg Direct clients. To gain access, OPEN AN ACCOUNT, whereby you will receive a real (live) account user ID and password which will give you access to these services. - Demo user ID and passwords will not allow access.

There are no charges to open an account and you do not need to fund your account until you are ready to begin live trading. Utilize these services in conjunction with your Demo Account and take it for a test drive.