Volume Analysis in EURUSD

Less is definitely more when it comes to analyzing markets. Or as the great trader Richard Dennis, backer and mentor to his now famous Turtles, put it, when asked why he made more money than anyone else in the room: “There is definitely less here than meets the eye”.

What Dennis was saying was trading is not near has complicated as we all try to make it. 

The chart below spells it out more succinctly then I could. There are two things there for us to study:   

1) The market is in a down trend over the previous two months as evidenced by the pattern of lower highs, lower lows and lower closes.

2) Over the last week we see a volume cluster, marked by red bars on the bottom of the chart, indicating the market closed lower on those days on higher than usual volume; i.e.: market weakness.
One of the tenets of technical analysis is volume confirms trend and this chart proves a good example why this is so. This is a daily futures chart and the 200K on the right side of the volume panel means 200,000 contracts were traded of the $125,000 contract for a monetary value of over $25,000,000,000 for 3 out of those 4 days.
What this red volume cluster does for professional traders is reinforce the already bearish technical picture by giving us all a heads up that the sideways price action we saw through the first half of February was likely just a price pause before a resumption of both the secondary and primary trends which are both lower.

We appreciate both fundamental and technical analysis at www.trading-u.com and volume analysis combines both in that it tells us exactly how many contracts traded for any given time period and whether the market ended up higher or lower for that period.


DISCLAIMER: Futures, options and Forex (off-exchange foreign currency futures and options, or “FX”) trading involves substantial risk of loss and is not suitable for every investor. The valuation of futures, options and Forex may fluctuate, and, as a result, clients may lose more than their original investment.

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About Jay Norris

Jay Norris is Director of Education at Trading University, has over 30 years of trading experience, and is the best selling author of "Mastering The Currency Market", McGraw-Hill, 2009, and "Mastering Trade Selection and Management", McGraw-Hill, 2011. He has also been published multiple times in Technical Analysis of Stocks & Commodities magazine.

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