In binary options trading, price is an essential point. That’s why traders try to accurately speculate the price of an asset so that they can make huge profits. But besides price, there are other aspects to binary options trading as well, like volume.
Volume in trading is highly relevant because it can help you identify some excellent trading opportunities. Also, by measuring volume, you can save yourself from bad trading events.
But how can you measure volume in binary options trading? Why is volume important? And how can you trade volume with binary options?
You can find the answers to these questions in this guide. And you can use the information to add value and accuracy to your trading.
What Is Volume?
Volume is one of the most straightforward concepts in binary options trading. It refers to how many assets you have traded within a set time perimeter. The higher is the amount of commodity, the higher is its volume.
For instance, imagine that you are trading a particular commodity at a price chart for 20 minutes. The last period had a volume of 1000. That means in the last 20-minutes period, you have traded 1000 stocks.
Although volume is an essential aspect in binary options trading, it gets overlooked by new traders. That’s because they don’t understand the power of volume, or they don’t know how to calculate volume.
It’s important to remember two things to know the exact volume of an asset:
- Volume in binary options trading measures underlying assets. It does not measure the number of binary options. For example, if you trade 100 units of an underlying, that means the asset had a volume of 100. It does not indicate the number of binary options.
- The value measures the number of assets. It does not measure the number of traders. For example, the value of 100 assets means that you traded 100 assets in a set time perimeter. It does not mean that you made 100 trades. Here, 100 assets could either be 100 small trades or one big trade. In either case, the volume remains the same.
You can quickly analyze changes in the volume from the chart. By observing the volume, one can also know about an emerging trend in the market.
Why Is Volume Important?
Since trading charts exist, what’s the point of analyzing volume data? Why is following trading volume necessary? It’s important because the volume has extended implications. Trade volume is related to buying and selling.
If the demand for a particular asset is more, its price will be higher. Similarly, if the supply for an asset is higher, its price will be lower. A strong trend takes the volume up. However, a downtrend brings it down.
The volume of assets can also be seen as confirmation for charts. This thing makes the volume a crucial aspect of technical analysis.
If there is a price alteration with a high-volume level, it will be more relevant than the price alteration of the same asset with a low level. By analyzing the first case, you can conclude that there will be a trend reversible. And the second situation indicates a temporary fluctuation.
The volume of an asset should always be in the same direction as the price trend. So, if the price decreases, the volume should also decrease. However, if the price increases, the volume should also increase.
Lastly, the volume of assets also talks about the stability in the market. If the price and volume move in the opposite direction, that means the trend is getting week. But if they travel in the same direction, the trend will become stable.
How Can You Measure Volume?
There are two important ways to measure volume. You can measure the volume directly, or you can measure it through technical indicators.
Measure Volume Directly
The simplest and easiest way to measure volume is by doing it directly.
Trading charts come with a powerful tool that you can use to draw the volume directly into them. Some of the charts come with these tools, but some don’t. However, you can always add the tool manually.
Bars indicate volume in charts. If the bar is long, it represents that the is high volume. However, if the bar is short, it suggests that the volume is low. You can use the volume data for trading by looking at the bars, i.e., candlesticks.
Measure Volume Through Technical Indicators
Another way you can measure the volume of an asset is by using a technical indicator. Out of all the available indicators, the popular one is Money Flow Index (MFI).
To calculate the volume, you need to do a quick calculation. You can compare the rising to fall period. Money Flow Index multiplies the volume of each asset with the length of each period.
After that, the indicator puts the sum of the period with rising prices to the sum of all falling periods. At last, MFI displays a value that is between 0 to 100. The displayed result can mean one of the three things.
- If the reading is 100, you can conclude that all the invested money flowed inside the asset.
- If the value is 0, it means the money flowed outside the asset.
- However, if the score is 50, it indicates that the money flowing inside is the same as money flowing outside.
You can determine the importance of every single factor of MFI by volume. So, a period with low volume is less prominent than a period with high volume.
Besides MFI, you can use many other technical indicators for measuring volumes like VIX, accumulation/distribution, and on-balance volume.
Trading Volume with Binary Options
You can trade volume with binary options by using the direct method, or you can do it indirectly via technical indicators.
You can use two kinds of signals for directly trading volume, i.e., single candlesticks and multiple candlesticks. Using these signals, you can predict the direction and can invest accordingly.
For trading volume indirectly, you can use indicators like MFI. While trading indirectly, remembers that MFI volume above 80 and below 20 are profitable. That’s because below 20 indicates oversold, and above 80 indicates overbought.
You can invest in falling prices if MFI crosses 80-line downwards. Similarly, you can invest in rising prices when MFI crosses 20-line upwards.
Volume in binary options trading plays a significant role as it can help you find profitable trading opportunities. You can also learn to calculate the volume so that you can make winning trades.
Moreover, you can use one of the two ways mentioned above to trade volume with binary options. You can do detailed research and market analysis to understand which method works best for you.