Using Volume To Help With Trend Trading

When you’re trend trading, you want to be in as long as you can, but in addition you may also want to add to a position as it begins to be profitable. Once you have entered and removed the initial risk from your first stop loss, here is a way to find great levels to move your stop under, and to maybe add small positions into the trade.

Volume Level Strategy

Important levels also have high volume or thin volume. High volume means more activity took place at the price, thin volume usually means price went straight through easy, re-rating to a new value.

When you are trading in a trending move, you may be looking to add to the winning trade.

As price progresses it will always retrace, sometimes not much if there is a lot of momentum, sometimes it will chop around for quite a while until positions have shifted and operators can take it further.

Most traders will simply add on a dip, and then end up negative for a while on the extra trades. This is often unavoidable, but here is a nice method for eyeballing the levels that may offer a better dip to buy.

In all honesty, it’s basically the same as what a volume profile indicator would show you, but by simply using your eyes you can see the levels.

Take a look at the chart below.

See each high volume area highlighted, and subsequent retraces into the volume (or value) areas see a bounce.

While the price kept moving up on this 1 hour chart, during the trend price retraced intraday several times to re-test the previous days value area. This is the area where the most volume took place.

This can be a good place to watch and be ready for a bounce in a smaller time frame, and get a lower risk “add on” to your trend trading.

You also have a place to move your stops. Directly underneath each “value” area.

This allows your trade to grow with the trend, and if it decides to fall through a volume area, then it’s probably best to be out anyway.

What About Forex and Volume?

When people trade forex with a broker that doesn’t offer direct access to the market, then any volume you see will be broker tick volume (more often than not).

While this is not “true” volume, it’s still a great guide to where the most activity took place.

Tick volume counts the amount of “ticks”, or price changes, during any timeframe bar.

So, if the area has high tick volume, then quite obviously a lot of activity was happening there. You don’t get an indication to the size of the trades (as you would with real volume), but you’ll know that this is where most of the trading occurred that day.

It works on forex also.

Here you can see the tick volume areas, and the small re-tests price made into each one, before falling further.

Take some time out and add the volume to your charts, if your style is trend trading over a longer term, or swing trading, it can offer great places you reduce risk and increase position size.