Forex Volume Trading Strategy

In the Forex market, we don’t have a centralized exchange of total volume because we’re trading over the counter. If we look at any trading platform like TradingView, they have volume attached to their chart. But, since we don’t have a centralized exchange that volume is coming from the feed that TradingView uses. So, each retail Forex broker will have their own aggregate trading volume.

Now, we can see that the volume in the Forex market is segmented, which is the reason why we need to use our best volume indicator.

The Volume indicator Forex used to read volume in the Forex market is the Chaikin Money Flow indicator (CMF).

The Chaikin Money Flow indicator was developed by trading guru Marc Chaikin, who was coached by the most successful institutional investors in the world.

The reason why Chaikin Money Flow is the best volume indicator and it’s better than the classical volume indicator is because it measures institutional accumulation-distribution.

Typically on a rally the Chaikin volume indicator should be above the zero line. Conversely, on sell-offs the Chaikin volume indicator should be below the zero line.

This volume trading strategy uses two very powerful techniques that you won’t see them written anywhere else. These are trade secrets that we’ve only been taught to professional traders.

The Chaikin indicator will dramatically improve your timing and it will teach you how to trade defensively. Having a good defense when trading is absolutely critical to keep the profits that you’ve earned.

Now, before we go any further, we always recommend taking a piece of paper and a pen and note down the rules of this entry method. You can also read a million USD forex strategy

For this article, we’re going to look at the buy side.

Step #1: Chaikin Volume Indicator must shoot up in a straight line from below zero (minimum -0.15) to above the zero line (minimum +0.15)

When the Volume goes from negative to positive in a strong fashion way it has the potential to signal strong institutional buying power. That’s our base heavy lifting signal!

Basically, we let the market to reveal its intentions.

When the big money steps into the market, they leave a mark as their orders are so big that it’s impossible to hide. When the volume indicator forex goes straight from below zero to above the zero line and beyond it shows accumulation by smart money.

We’re firm believer that you get your maximum bang for the buck when you trade side by side with the smart money. The institutions have more money than you have, more resources than you have and probably they are smarter than you. It’s pretty obvious that the odds are stacked against you, so if you want to change that just follow the smart money.

There is one more condition that needs to be satisfied to confirm a trade entry.

See below:

Step #2: Wait for the Volume Indicator Forex to slowly pullback below the zero line. The price needs to remain above the previous swing low.  

Once we spotted the big elephant in the room aka the institutional players we start to look for the first sign of market weakness. Here is how to identify the right swing to boost your profit.

We’re going to let the Chaikin Money Flow indicator slowly drop below the zero line. The key word here is “slowly”. We don’t want to see the volume dropping fast because this will invalidate the accumulation noted previously.

Secondly, as the volume decreases and drops below the zero line, we want to make sure the price remains above the previous swing glow. This will confirm the smart money accumulation.

The Volume strategy satisfies all the required trading conditions, which mean that we can move forward and outline what is the trigger condition for our entry strategy.

See below:

Step #3: Buy once the Chaikin Forex indicator breaks back above the zero line. Wait for the candle close before pulling the trigger. 

Now that we have observed real institutional money coming into the market, we wait for them to step back in and drive the market back up.

When the Chaikin indicator breaks back above the zero line, it signals an imminent rally as the smart money are trying to markup the price again.

Obviously that we would need to wait for the candle close to confirm the Chaikin break above the zero line. Once everything aligns together we’re free to open our long position. Here is an example of master candle setup.

Note* The trigger candle needs to have the closing price in the upper 25%.

This brings us to the next important thing that we need to establish for the Chaikin trading strategy, which is where to place our protective stop loss.

See below:

Step #4: Hide your protective Stop Loss under the previous pullback’s low

Using a stop loss is crucial if you want to have an idea of how much you’re about to lose on your trade. Never underestimate the power of placing a stop loss as it can be lifesaving.

Simply hide your protective stop loss under the previous pullback’s low. Never use a mental stop loss and always commit a SL right at the moment you open your trades.

Trading with a tight stop loss can give you the opportunity to not just have a better risk to reward ratio but also to trade bigger lot size.

Last but not least, we also need to learn how to maximize your profits with the Chaikin trading strategy.

See below:

Step #5: Take profit when the Chaikin Volume drops below -0.15

Once the Chaikin volume drops back below -0.15 it indicates that the sellers are stepping in and we want to take profits. We don’t want to risk giving back some of the profits gained so we liquidate our position at the first sign of the smart money stepping in on the other side of the market.

We always can get back into the market later if the smart money buyers show up again.

Note** the above was an example of a BUY trade using the best volume indicator. Use the same rules for a SELL trade – but in reverse. In the figure below, you can see an actual SELL trade example.

The Volume Trading Strategy will continue to work in the future because it’s based on how the markets move up and down. Any market moves from an accumulation (distribution) or base to a breakout and so forth. This is how the markets have been moving for more than 100 years.

Smart money always seeks to mask their trading activities, but their footprints still remain visible and we can read those marks by using the proper tools. Here is another strategy on how to apply technical analysis step by step.

Make sure you follow this step-by-step guide to properly read the Forex volume. The Chaikin indicator will add additional value to your trading because you now have a window into the volume activity the same way you have when you trade stocks.

Thank you for reading!

Please leave a comment below if you have any questions about the volume indicator Forex!