Thoughts on Forex Order and Trade Volume

[andy2m 10]

In the last weeks I have tried to find out some relationships between forex (order-)volume and price. I'm influenced by Neill's "Tape reading and market tactics".

On forex we have no normal volume of course but with my IB account I can catch both trade volume (as well as ticks) and order volume (from DOM).

 

This "volume" is not to read like volume on a stock chart but at least there are some clues that could be given to us. Even more if I apply a filter and only catch the "big" volume (> 3x average volume) to see what the big players do.

I observed the order and trade volume for a while and can at least say there are relationships between volume and price however no hard and fast ones.

 

My observations so far (see orange circles in charts):

- periods of "silence" (small trade volume of big players) are often followed by big moves)

- a spread in bid/ask order volume often leads to a move in price

- a crossing in bid/ask spread leads to a change in price move direction

 

So far so good. I built an automated strategy on these observations and with a sound money management they work not bad. The only remaining "little problem" is direction. It's possible to play a breakout strategy on the observed facts, breakouts from low volume regions, but I could improve the results dramatically if I had more clues on direction. In reality sometimes bid>ask leads to an up- sometimes to a down-move, seems like a 50% chance.

 

Maybe someone here has made similar observations and does know something about the big players tricks that are going on every day?

 

Andy

[kazos 10]

It is possible to assess liquidity and strenght of the move by looking at good data feed chart or data feed alone. Bid/ask spread can also help us a bit what's going on. Price movement is the clue . it's like an animal. you just need to learn to read its intention.

[BlowFish 10]

" I can catch both trade volume (as well as ticks) and order volume (from DOM)."

 

I don't think you can? How can you differentiate between someone 'pulling' an order and a trade taking place? All you can see is bid ask changes isn't it? That is the big problem with spot FX.

[Flojomojo 10]

I had a thread about a similar topic a while ago over here: http://www.traderslaboratory.com/forums/f24/thoughts-on-forex-volume-4227.html?highlight=thoughts+forex+volume

 

Regards,

Flojo