Can a Forex Volume Strategy generate profits?  We tested it out.

Forex Volume often is forgotten in terms of trading strategies, but it is not forgotten here.  The focus is completely on finding a Forex Volume Strategy that generates positive results.  The answer is that such results were found, but there’s a small catch to it – like everything else in life.  Find out about three different sets of strategies that focus on Forex Volume.

One clear ground rule is that the Volume used is the one that is provided by the broker, is it necessarily exact?  No, but it is a good enough representation of the relative trading volume whether there are increases or decreases.

Volume Rising with Consecutive Candles in One Direction

Buy Entry

• Two previous consecutive bullish candles with rising volumes with higher closes.
• Ask is higher than the previous candle’s Close.

Buy Exit

• The volume of a candle is lower than the previous candle.

Sell Entry

• Two previous consecutive bearish candles with rising volumes with lower closes.
• Bid is lower than the previous candle’s Close.

Sell Exit

• The volume of a candle is lower than the previous candle.

EURUSD – 1 Hour

AUDUSD – 1 Hour

USDJPY – 1 Hour

EURUSD – 4 Hour

AUDUSD –  4 Hour

USDJPY – 4 Hour

Smaller-Sized Candle with Larger than Average Volume

This strategy is specifically for EURUSD and USDJPY on a 1 Hour Chart according to the creator of this Volume Trading Strategy.

Buy Entry:

• Volume is above-average for the previous candle.
• Previous candle is between 8 and 15 pips in range.
• Price exceeds the High of the previous candle.

Buy Exit:

• Price falls below the Low of the previous candle – STOP LOSS
• Price rises by the same amount of pips that are in the range of the previous candle – TAKE PROFIT

Sell Entry:

• Volume is above-average for the previous candle.
• Previous candle is between 8 and 15 pips in range.
• Price drops below the Low of the previous candle.

Sell Exit:

• Price exceeds the High of the previous candle – STOP LOSS
• Price falls by the same amount of pips that are in the range of the previous candle – TAKE PROFIT

EURUSD – 1 Hour

USDJPY – 1 Hour

Fading Volume Strategy

After the volume has six consecutive candles with less volume than the Previous, the following apply.  The Stop Loss and Take Profit differed based on two different variations of the strategy.  The first type was a strict 90 pip Take Profit with a 40 pip Stop Loss.  The second type adhered to the minimum number of pips difference between the Closes of the 7th Previous Candle and previous candle for the Stop Loss (25 pips) and a Take Profit that was the High or Low of the 7th previous candle with the difference between the High or Low of the 7th previous candle with the Close of the previous candle.

Buy Entry:

• There is downward movement during the six consecutive candles.
• The Close of the previous candle is between 25 and 50 pips less than the Close of the 7th previous candle.

Sell Entry:

• There is upward movement during the six consecutive candles.
• The Close of the previous candle is between 25 and 50 pips more than the Close of the 7th previous candle.

Second Methodology with the more variable Take Profit

Forex Volume Strategy Conclusions

The only Forex Volume Strategy that was successful was the one with the least trades placed, which was the Fading Volume Strategy.  Those trading this strategy manually would likely miss trades and it could prove to be costly.  This must be automated due to the infrequency of the trades and the assurance that the proper conditions were met.  Screen blindness is a real phenomenon and when for a particular currency pair, a trade comes along 10 times per YEAR, it is something to automate.

The other strategies fared poorly, but it is possible with other indicators and conditions placed there would be better results.  However, the objective was to isolate the trading volume and not mix it with indicators and oscillators.

Creating an algorithm that applies to all currency pairs for the Fading Volume strategy should provide enough trades in a year to keep traders satisfied with the frequency of trades.

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