Volume information is one of the most important components of technical analysis of markets. Volume indicates the quantity of money flow into a particular investment instrument. An increase in volume often precedes an increase in price, and a decrease
in volume is considered early identification of weakness. The best equity traders could not conceive of trading without volume data. Yet there is no volume data for spot forex
prices when trading through spot forex firms.

This lack of volume data makes many indicators offered irrelevant. Because volume and changes in volume are highly related to indicators of sentiment and market psychology,
the forex trader needs to rely on technical indicators that act as a substitute for volume data. For example, knowing that a currency pair is probing a daily support level for a few days represents a great deal of volume at that daily support level. The position of the currency pair price in relationship to support and resistance and how close it is to either level becomes a good substitute for volume. Additionally, when economic data releases comes out, the entire market focuses on the report, and the trader knows that maximum volume is at these news events. Therefore, one of the best ways to overcome the lack of volume data is to trade where there is certainty on maximum volume.

However, for those traders who want the best of all worlds, there is a way to obtain volume data for the spot forex trader.

Futures on currency trading include volume data in the form of open interest contracts. This means that all of the technical indicators on the futures side that include volume are valid. While trading the euro-U.S. dollar (EURUSD) through the spot market, a serious trader could also observe the volume data of the futures on the EURUSD contract. While this is cumbersome and involves extra cost,those traders who favor using volume data to gain an edge in their trading are able to overcome this gap. The limiting factor is that the maximum benefit of such volume data
occurs during U.S. trading hours only.

An additional volume-related data involves the Commitment of Traders (CoT) Report. This is a weekly report from the Commodity Futures Trading Commission(CFTC; available at www.cftc.gov/cftc/cftccotreports.htm) providing a breakdown of
each Tuesday’s open interest for markets in which 20 or more traders hold positions equal to or above the reporting levels established by the CFTC. Open interest is broken down by aggregate commercial, noncommercial, and nonreportable holdings. While the data provided by the CoT Report is lagging (the Friday report reflects the previous Tuesday’s data), when extremes are reached in positions by the noncommercials, it is a situation that is especially noteworthy for the forex spot trader. The trader can gain greater confidence in aligning his or her next trade in the direction of the noncommercials, which are representative of the sentiment of the “smart money.”

Until Forex firms provide the CoT data more conveniently, spot traders need to access this information on their own. It is available at many web sites, as well as from third-party software providers. One such provider, Track ’n Trade, generates CoT charts with effective visualizations of the data.

An emerging source of volume data is exchange-traded funds (ETFs) on currencies. One of the leading traders , John Person, effectively uses these volume data sources. ETFs on currencies are fairly new opportunities for forex and equity traders.

Source:The_Forex_Trading_Course_A_Self Study_Guide_To_Becoming_a_Successful_Currency_Trader, Abe Cofnas, (pg. 107-109)

@ceinz, thanks alot. How can I get the book 'The Forex Trading Course'?

Feels good to have a GBP -base account.

as long as inflation is high in euro (it currently is ) the euro will always go up.although i dnt expect a rate hike for the euro come next week a rate hike in the next ECB ( euro central bank)meet is as sure as the rising sun...
i will definately not short the euro anytime soon..

So far the AUDUSD has played as I expected. It managed to get to a high of 1.10. I likely suspect that is it for the year.
EURGBP has retraced all the way back to 0.9000. It has always been a good sell candidate above this level.
Now I'm also hoping EURUSD can get above 1.5000 in the next bullish run.
AUDCAD almost took out 1.05.

What I'm looking for going forth this Q2 2011...

AUDUSD - 1.10 - 1.11 --> If we get to these levels with the DXY index making new lows but the weekly RSI diverging upwards, I'll start shorting.
AUDCAD - 1.04 - 1.05 --> Depends on the AUDUSD pattern. But this one will be my large monthly trade, I expect it to swing down to 0.95 - 0.97 on the short side. It tested 0.97 during the Jap quake and it will break it on the next down swing.
EURGBP - 0.9x levels have always been good selling points. If it can get above 0.95xxx I'll be short - weekly trade. Largely depends on EURUSD getting above 1.5 to 1.55 levels.
EURUSD - same analogy to AUDUSD. But not my preferred trade. Will likely trade it if we get to spectacular eurozone defaults. Trading this ugly pair is not attractive to me i.e. fundamentally both economies are in dogs... Almost like choosing a less painful punishment... It's still a punishment...

Note: The DXY index is oversold on the weekly chart. Downward pressure still persists for some few more weeks, before the reversal. Daily charts, suggest a minor bounce.

I am also watching USDJPY as it traces all the G7 intervention gunpowder. If the G7 cannot successfully intervene in FX, then BoJ is utterly hopeless. But the Bankers (note B is capitalized i.e. money printers) are not to be defeated that easily and I expect another explosive intervention attempt at 80.00 or below this spot level. This is to flush out and teach a stoploss lesson to those pesky short sellers from messing with the USDJPY cross as per the money masters wishes. This happened many times with EURCHF with SNB. But since BoJ is know for yen interventions, it will take several successful shorting attempts, before BoJ gives up...


As for silver. Well 11% down is less than an hour yesterday says what to expect when prices go bonkers aka parabolic... Such crazy upward moves are swiftly retraced?! I hope the price gets back at 35 or below for the next buying opportunity.



update - forgot to mention USDCHF has achieved the 0.86 - 0.87 target. Should also bounce.

Euro plunges on ECB decision to hold rates, contrary to hawkish expectations of some players. EUR/GBP down 200 pips after temporarily crossing the 0.9 level. Lucky to have caught 100 pips of this( trade still on, hope the plunge continues)thanks to my late entry. once again gratias Hisah for pointing this out.

EURUSD - 300pips down and plunging...?! Stoploss aka ulcers central...