Horizontal and vertical volumes in Forex
Market size and cluster analysis is one of the types of strategies for which companies develop separate platforms and tools. We have already introduced you to such developments in the last review. And so all these platforms are “sharpened” for VSA (Volume Spread Analysis) analysis with cluster distribution, we think it makes sense to describe in general terms what it is, what is the difference between horizontal and vertical volumes, and also how to adjust MT4 for this type strategies.
How to use horizontal and vertical volumes in different types of strategies
Every second / millisecond in Forex, deals are made: someone sells an asset, someone buys. Someone wants a higher price for an asset, someone, on the contrary, plays a decline. Someone buys up all the existing liquidity at once, and someone enters the market in small positions. The instrument that displays data on current prices and volumes of positions (the amount of currency that a particular trader wants to buy / sell) is called the Depth of Market. And in MT4, by the way, it is not, but in MT5.
Since there are millions of transactions in the market, the movement of prices and volumes in the Depth of Market turns into a kind of chaos. The problem can be solved by the cluster analysis indicator, which breaks down the entire set of existing positions into separate clusters – areas that are somewhat homogeneous. This allows you to see the areas where the largest / least number of orders / volumes and the most / least interesting prices for traders are concentrated.
Market volume is the number of currencies / shares that have been bought / sold in a given amount of time. It is an element of technical analysis by which one can judge the significance and strength of the price movement.
- Example. You see the beginning of a flat: how to determine whether it will continue or the trend will sharply go one way or another? If the market volume is small, that is, almost no deals are made and traders show no interest in the market, the flat will continue. If the flat area has arisen only because the volumes of buyers and sellers are equal, but the market is highly liquid, this means that a flat breakout can occur at any time.
Vertical volume is the volume that was bought / sold for the current candle. The volume presented in MT4 (the Volume displayed below the chart) is the tick volume formed by the broker’s trading volumes. It can be used to judge when large capital enters the market to collect the accumulated liquidity (in order to buy 1000 lots of currency at once, the market maker must wait until there are 1000 sellers in the market for 1 lot). But the vertical volume does not show at what price the most trades were made inside the candle.
Horizontal volume is a tool that shows the number / volume of trades that were executed at a specific price. It allows you to see which price was interesting to the most traders. One of the options for using horizontal volume is to estimate its maximum relative to the beginning and end of the candlestick. This allows you to determine the points of opposition of buyers / sellers, look for reversal points and a slowdown in the trend.
The horizontal volume is also called the Market Profile; the corresponding indicator can be delivered to MT4 as well.
Benefits of horizontal market analysis:
- Allows you to understand the balance of power in the market. The presence of large volumes can mean that a large market maker has entered the market, which can move the price despite the signals of technical analysis.
- Allows you to find strong levels. Consolidation will not occur near weak levels, therefore, the presence of large trading volumes is a signal of the formation of a strong support and resistance level.
- Allows you to determine the location of the stops.
This is just a general description of what horizontal and vertical volumes are and how they can be of interest to a trader. If you have questions or need to consider this topic in more detail, write about it in the comments!