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Reader Questions Answered Trading Tips

Forex Volume Figures

I had a question come in overnight regarding volume data and how it can be used for forex in terms of the price distribution methodology I use and teach. The question was:

In connection with your price distribution course, how do you find the volume figures needed for this type of analysis in forex?

I hear some use the futures as proxy but dont COT reports only come once a week?

Of course in forex trading volume is always an issue since there is no one aggregate source for spot trading figures. Futures volume can be employed as a proxy so long as you understand the limitations and can make the price level adjustments to make sure you’ve got the correct reference points. That volume will be available in any commonly available futures price feed service just as it would be for the S&P futures or gold or oil.

As for COT (Commitment of Traders), that won’t help you at all in this regard. As I’ve written before (Commitment of Traders – A Weekly Report Worth Viewing and Do you use the Commitment of Traders report to trade?), it’s got some potentially useful info for the wider perspective, but it won’t help you on a day-to-day basis.

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Reader Questions Answered

Volume in the Forex Market

Here’s an email question that came in recently which relates to volume in the forex market.

Hello John,

I’m a Forex trader. Is there something equivalent to a buy/sell pressure indicator for the MT4 platform that you know about or can recommend.

My trade plans are less effective when the O/S or O/B conditions last for a long time. One of the indicators I use is the stochastic.

Sometimes it undulates above 80 or 30 so I’m never sure when it undulates if it going to break the high/low of the previous wave.

I’ve seen some buy/sell pressure attempted with tricks for getting the currency’s volume or with number of tics but I don’t think it a reliable way to gather this data. Any thoughts would be appreciated…

–Ermalinda

Pretty much without exception, the volume figures you see in forex are not actual traded volume. They are tick volume, which indicates how many times a given price changed. While it can sometimes be an interesting indication of how active the market was in terms of price choppiness, it gives absolutely no indication of how much actual buy and selling is being done. As such, any technical indicators based upon tick volume are of dubious value from that perspective.

The only readily available public volume figures that I currently know of are in the futures and forex ETFs. They may, at times, be useful. Just keep in mind that they only represent a tiny fraction of what is done on the spot market.

As for the effectiveness of over-bought/sold trading with Stochastics, keep in mind that they will be good during range-bound periods but will kill you in trending conditions.

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Reader Questions Answered

A Trader’s Educational Path

I received the following in an email from a member of my mailing list. Because I think it tracks pretty well how many people work their way through different tools and resources and methods I decided to include it here essentially unedited. My comments and responses to the questions presented are at the end.


Like I said before I’m new to trading at what I consider a professional capacity. I’m more focused than I’ve ever been and couldn’t be more excited about trading, and yes of course I have a million questions for a seasoned professional such as yourself.

My trading education lead me first to Lance Biggs and I have now watched all his videos multiple times and read all the articles on his website which is in fact where I came upon your article.  Lance had mentioned that the single person who had influenced his trading the most was Mike Reed (www.tradestalker.com) who trades mostly off of support/resistance . Although I trust Lance Biggs recommendation highly I would like very much to know if you have reviewed this system and your opinion if so.

Along with Lance Bigg’s trading basics money management was my key focus. Now that I have the basics down I’m looking for what I term as high probability entry’s.

I seem to have stumbled onto volume as the best leading indicator as it points to where the big money is going. Your article on value areas etc. was very helpful.  From this I have started looking at various sites who seem to have the best Volume indicators such as www.linnsoft.com, who has a value area indicator (www.linnsoft.com/tour/techind/va.htm), and others such as www.ninjatrader-support.com/HelpGuideV6/helpguide.html?PowerVolumeIndicators .

There is also Trade Maven who has seemingly come up with some volume based system that I’m still not sure about. They are by far the more expensive of the two.

Finally there is a group which seems to me to be the most impressive (due to their many videos). They use what is called Price-Volume-Spread-Analysis or PVSA.  I called them and spoke with someone at length about their program and was even more impressed afterwards having learned that along with PVSA (which sounds great but is still rather mysterious) they use a form of Price Analysis/Price Action where they analyze the last ten candlesticks.  This all sounds most fascinating but their program costs a small fortune.

I would me VERY grateful if you had any ideas/comments on their system or if you perhaps know anyone who has taken or heard about their program. This is their website. www.nextbartrading.com  Be sure to watch their live trading videos.

Finally, my instinct is telling me that there is a very simple and obvious way to trade using a combination of support/resistance, volume, and by analyzing price action.

What does your trading system look like?  What indicators do you use? and really, do you believe I’m on the right track?


The first question posed above was whether I had any experience with Mike Reed’s analysis. I personally have not read much of Mike’s actual day-to-day market analysis and trading ideas. I have some idea of where it’s focused (support and resistance as noted), but I’ve not made a study of what he does. This has nothing to do with the quality of Mike’s work. Based on the feedback I’ve received over the last few years, that quality is very high. For my part, though, I steer clear of reading other people’s market analysis as it tends to muddle my own.

My next comment is that I have not used any of the other resources listed above, so I can make not comment on them personally. I encourage anyone who has, to offer their thoughts via comment below, though.

Now, getting to the last part of things, my first comment is that combining support/resistance, volume, and price action analysis generally (but not necessarily always) falls into the category of discretionary trading. As such, “simple” probably isn’t the best word to use here. Good discretionary trading comes about from experience. That means lots of looking at charts, and lots of developing expectations about future price movement from what you see. It’s not a quick thing.

I personally trade in a couple of different ways. When position trading stocks I incorporate basic fundamentals with price action analysis. When short-term trading indices or forex, I use price/volume distribution analysis. In those same markets, when I’m looking longer-term I generally go with price action and volatility.

But that’s just me.