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Do You Believe in Forex Tick Volume?

September 15, 2014 (Last updated on September 8, 2017) by

Quite often, I get requests from Forex traders to implement this or that indicator or expert advisor that applies tick volume to analyze or trade currency pair. Tick volume that is present in every MetaTrader platform is based on the number of price updates (ticks) that come during the formation of a given bar. At first glance, it seems to be a good approximation of real volume, but in reality it is a poor substitute, which can only serve as a simulated measure of “something”.

First, the main idea of tick volume is flawed — one tick (price update) may be caused by either a small volume trade or a very big trade — it will not be accounted for in the tick volume, which will increase by one notch only. Moreover, big trades may happen within the current price spread, which will not generate a tick.

Second, the main contributing factor to the tick volume values is the broker’s data feed. Here are two screenshots that are worth more than two thousand words:

EUR/USD - Weekly chart with tick volume provided by EXNESS

EUR/USD - Weekly chart with tick volume provided by AGEA

The top image is from EXNESS, the bottom image is from AGEA. Both images show weekly charts of EUR/USD with their respective tick volumes.

Third, tick volume does not correlate with real volume in futures market. Of course, there could not be a perfect correlation between spot and futures markets, but there should be at least some correlation between the two. Below is the Non-Commercial Positions and Open Interest charts (provided by OANDA) from the Commitment of Traders report, showing the weekly EUR/USD data for the same period as the charts above. Commitment of Traders report shows the data provided by the regulated futures exchanges of the USA. The changes in Open Interest show us the real volume — exchange participants must execute trades to close or open new positions. Apparently, there is no correlation between high EXNESS volume during the marked period and the insignificant OI changes on the chart below:

CoT - Open Interest chart showing almost no volume during the highlighted period

As you have probably understood by now, I do not believe that tick volume has any effective use in Forex trading. And how about you?

Do you think that tick volume is a useful estimate of real volume in Forex?

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If you want to share your opinion on how real trading volume can be estimated in spot foreign exchange market, please use the commentary form below.

6 Responses to “Do You Believe in Forex Tick Volume?”

  1. Andrew

    Wow, the results of this were a bit surprising? I use tick activity volume as my primary trading tool to spot signs of strength/weakness in the market, and a lack of supply & demand.

    Not saying either vote answer is right or wrong, but I can’t look at price without volume!

    Reply

    Andriy Moraru Reply:

    It would be really cool if the tick volume represented the supply & demand somehow.

    I believe that Forex volume will get its second life only when big liquidity providers will start feeding a sort of cumulative volume feed to retail brokers.

    Reply

  2. Andrew T

    Tick data is incredibly useful if you compare across a few reliable brokers for vsa. I personally am much more successful with it than without it anyway

    Reply

    Andriy Moraru Reply:

    VSA?

    Reply

  3. Andre

    Volume Spread Analysis

    Reply

  4. CELESTE SEGAL

    Hi Andrew T

    Could you tell me more about how you use tick volume for your for ex trades please? Are you using VSA as well. I would appreciate hearing your take on this pkease.

    Thanks

    Celeste

    Reply

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