Volume is one of the simplest but most powerful pieces of information a trader can add to a chart. In the stock market or futures, “volume” refers to the number of contracts or shares traded during a time period. In forex, because the market is decentralized, volume looks and behaves differently — and that affects how you read and use volume indicators. This article explains what volume indicators are, how they work in FX, common volume-based tools, practical ways to use them, and important caveats to keep in mind. Trading carries risk and this is general information, not personalised advice.
What the volume indicator shows
On price charts the basic volume indicator appears as vertical bars under the price pane. Each bar represents activity during the chart’s timeframe: one bar per minute, hour or day depending on your chart. In on-exchange markets those bars measure actual trades. Volume answers a simple question: how many market participants were active during that period?
Volume does not tell you direction on its own. A large volume bar simply means many trades happened. To turn that into actionable insight you always read volume alongside price: did price rise or fall while volume increased, did volume shrink during a rally, or did a breakout happen on unusually high activity? Those relationships are what make volume useful.
Why volume in forex is different
Forex is an over-the-counter market with no central exchange reporting all trades. That means retail platforms typically show tick volume — a count of price updates — rather than the true number of contracts exchanged. Tick volume tends to correlate with real activity: faster price movement and more participant messages usually produce higher tick counts. Still, tick volume is an approximation and can vary between brokers or data feeds.
By contrast, futures and stocks trade on exchanges that publish real volume and open interest. That difference matters when you compare signals across asset classes: a volume spike in a futures contract is literal; a spike in EUR/USD tick volume is a reflection of higher quote activity and liquidity, not a direct count of contracts.
Common volume-based indicators
Most trading platforms provide a small suite of indicators that build on raw volume to highlight money flow or participation. The familiar ones you’ll see include On-Balance Volume, Money Flow Index, Chaikin Money Flow, VWAP, and Volume Profile. Each one uses price and volume in a slightly different way to surface accumulation, distribution, or the price levels that attracted the most trading.
- On-Balance Volume (OBV)
- Money Flow Index (MFI)
- Chaikin Money Flow (CMF)
- Volume-weighted Average Price (VWAP)
- Volume Profile (horizontal volume by price)
These help with different questions: OBV tries to show whether volume favors buyers or sellers over time; MFI and CMF combine price position in the bar with volume to indicate money flow; VWAP gives an intraday average price weighted by volume; volume profile highlights price levels with the greatest traded volume.
How to read volume in forex — practical examples
Reading volume is a narrative exercise: you interpret what the market’s participants are doing and why price moves make sense given that activity.
Imagine EUR/USD in an uptrend on the daily chart. If the green candles that make the uptrend are accompanied by above-average tick volume, that suggests broad participation — the move is likely supported. If, after several higher highs, the price hits a new high but daily tick volume is lower than earlier up-days, that divergence can flag weakening conviction and the possibility of a reversal.
In another example, consider a range where price has bounced repeatedly between 1.1000 and 1.1100. A breakout above 1.1100 that occurs with a large tick-volume spike has a higher chance of following through than a breakout on thin volume. Conversely, a break that happens on low or average tick volume is more likely to be a false breakout and fade back into the range.
For intraday traders, VWAP can act as a dynamic reference. If price trades above the VWAP and volume is concentrated on the bid side, institutions are likely buying, and a long bias might make sense for short-term trades. Volume profile is especially useful around session opens or prior high-volume price nodes: those price levels often act as support or resistance.
A simple workflow for using volume in your analysis
Start with raw volume bars and a short moving average of volume (for example a 20-period VMA). Look for volume that is clearly above or below the recent average; those deviations matter more than isolated counts. Combine what you see with basic price-structure cues: trend, support/resistance, chart patterns, and candlestick context.
When you evaluate a signal, ask three questions: is price moving in a clear direction, is volume confirming that direction, and is there follow-through after the initial move? If two of these are positive (price direction and volume confirmation), the signal is usually stronger. If only price moves and volume declines, treat the move with caution.
Practice this workflow on a demo account and backtest simple rules such as “only take breakouts above resistance when volume exceeds the 20-day average by X%” to get a feel for how volume behaves on the pairs and timeframes you trade.
Risks and caveats
Volume indicators are helpful but not perfect. In forex you are looking at tick volume rather than a complete ledger of trades; different brokers and data feeds can show different tick counts, especially during low-liquidity hours or holidays. News releases and market-open overlaps can generate huge spikes that reflect a short-lived reaction rather than a sustainable trend. High-frequency trading and algorithmic order flow can also create volume noise that doesn’t reflect typical retail activity.
Volume cannot predict future price by itself — it confirms or questions the credibility of price moves. Signals produced by volume-based indicators can lag or produce false positives, and high volume can mean either strong continuation or exhaustion depending on context. Finally, in thin or illiquid markets, volume is easier to manipulate and slippage can make execution different from theoretical entries.
Always treat volume as one input among many, test rules on historical data, practise on a demo account and be conscious of position sizing and risk management. Trading carries risk and you can lose money; this article is educational and not personalised trading advice.
Key Takeaways
- In forex you mostly use tick volume: it reflects market activity but is not a complete count of trades.
- Volume confirms conviction: rising volume with price supports a move; falling volume during a trend can warn of weakening momentum.
- Use volume with price structure and other tools (OBV, MFI, VWAP, volume profile) — avoid relying on volume alone.
- Be aware of data limitations, session effects, news spikes and possible manipulation; always manage risk and test before trading live.
References
- https://www.oanda.com/us-en/trade-tap-blog/trading-knowledge/volume-indicators-enhance-technical-analysis-trading-strategies/
- https://trendspider.com/learning-center/understanding-volume-indicator-a-comprehensive-guide/
- https://blueberrymarkets.com/academy/what-are-volume-indicators-how-to-use-them/
- https://www.youtube.com/watch?v=JGylfB0TYtA
- https://www.investopedia.com/ask/answers/041015/why-trading-volume-important-investors.asp
- https://www.tradingwithrayner.com/volume-analysis/