Volume: confirming price moves

Price tells you what happened. Volume tells you how forcefully. A 1% rise in a stock can be driven by a handful of orders or by a massive wave of buying, and those two situations mean very different things. Volume is one of the few tools that is not calculated from price: it is different information, and therefore valuable.

What volume measures

On an exchange-traded market, such as stocks or futures, volume is the number of shares or contracts traded during a period. It is shown as bars below the chart, one bar per candle. Every trade has a buyer and a seller: so volume does not say who won, it says how many participants got involved.

It is the combination of price and volume that speaks. A big green candle on volume twice the average shows that many buyers were willing to pay more. The same candle on low volume may be nothing more than a move in a thin market, easy to erase.

The special case of forex: tick volume

Forex is a decentralised market. It turns over about $7.5 trillion a day according to the BIS (2022), but that trading is spread across banks, electronic platforms and brokers, with no central exchange. So nobody knows the true total volume traded on EUR/USD in any given minute.

What your platform shows under a forex chart is usually tick volume: the number of price changes recorded by your broker during the candle. The more active the market, the more often quotes change, so the higher the tick count. It is not real volume, but it generally tracks market activity reasonably well.

• Tick volume varies from one broker to another, since it depends on their price feed.
• It is mostly useful in relative terms: compare a candle with the average of the previous ones, don't read an absolute number.
• It follows the rhythm of the sessions: low at the end of the Asian session, high during the London-New York overlap.
• For real volume on currencies, some traders look at currency futures listed in Chicago.

Confirming a breakout

This is the most useful application of volume. When price clears resistance, the question is: is this a real breakout or a trap? A solid breakout attracts new buyers and triggers sellers' stops, which produces a volume spike. A breakout on thin volume shows that few participants believe in it.

Exhaustion and climax

Volume also helps you spot the end of a move. After a long decline, a very large candle on exceptional volume can mark capitulation: the last sellers throw in the towel at the same time. If the next candle does not extend the decline, this volume climax often signals at least a temporary low.

Conversely, a trend that keeps advancing while volume declines candle after candle shows that fewer and fewer participants are following it. That is not a reversal signal in itself, but it is a good reason to tighten your management or avoid entering late.

Watch out for misleading comparisons. Volume follows a very marked daily rhythm: it climbs at the London open, even more at the New York open, and drops off in the evening. An H1 candle at 2 pm London time will almost always have more volume than a 2 am candle, without that meaning anything in particular. So compare a candle with those from the same hours on previous days, or with an average long enough to smooth out these swings.

Public holidays and festive periods also distort the reading: low volume in late December mostly reflects the absence of many participants, not any particular lack of conviction in the current move.

In summary

Treat volume as a witness: it confirms or contradicts what price is saying. In forex, remember that you are reading tick volume, useful for comparison, not as an absolute value. On indices and stocks, real volume is available and even more telling. Either way, the question to ask yourself stays the same: is this move backed by real participants?