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What is volume in forex market?

The forex market is a decentralized market where currencies are traded globally. It is the largest financial market in the world, with a daily trading volume of over $5 trillion. Volume is one of the most important indicators in forex trading, as it provides traders with valuable information on the strength of a price trend, the level of market participation, and the general sentiment of the market.

In forex trading, volume refers to the total number of units of a currency pair that have been traded during a specific period. This period can be anything from a single tick to a day, a week, a month, or even a year. Volume is measured in lots, where one lot equals 100,000 units of the base currency.

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Volume is a crucial indicator for forex traders, as it helps them to identify the strength or weakness of a price trend. When there is a high volume of trading in a currency pair, it suggests that there is a lot of market participation, and that the trend is likely to continue. Conversely, when there is a low volume of trading, it suggests that the market is quiet, and that the trend may be losing momentum.

For example, let’s say that the EUR/USD currency pair is trading at 1.2000, and the volume is high. This suggests that there is a lot of buying and selling activity in the market, and that the trend is likely to continue in the direction of the current price. However, if the volume is low, it suggests that there is little market participation, and that the trend may be losing momentum, or even reversing.

Volume can also be used to gauge the sentiment of the market. For example, if there is a high volume of buying in a currency pair, it suggests that traders are bullish on the pair, and that they expect the price to go up. Conversely, if there is a high volume of selling, it suggests that traders are bearish on the pair, and that they expect the price to go down.

In addition to providing information on the strength of a trend and the sentiment of the market, volume can also be used to identify potential price reversals. For example, if there is a high volume of selling in a currency pair, and the price is still going up, it suggests that the trend may be losing momentum, and that a reversal may be imminent.

There are several ways to measure volume in the forex market. The most common method is to use the volume indicator, which is a technical indicator that shows the total volume of trading in a particular currency pair over a specific period. The volume indicator can be plotted as a histogram or a line graph, and it is usually displayed below the price chart.

Another way to measure volume is to use the tick volume indicator, which shows the total number of price changes that have occurred during a specific period. The tick volume indicator is a more accurate measure of volume than the standard volume indicator, as it takes into account all price changes, regardless of whether they resulted in a trade or not.

In conclusion, volume is a critical indicator in forex trading, as it provides traders with valuable information on the strength of a trend, the level of market participation, and the general sentiment of the market. By understanding how volume works, traders can make informed trading decisions, and increase their chances of success in the forex market.

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