In theory, the volume is used to confirm the trend. The rule according to Dow is: In the upward movement, it must be supported by an increase in volume. Similarly, in the downward movement, it must be confirmed by a decrease in volume.
The problem is, in fact, the theory is not always directly in line with the facts in the market, when prices move linearly, volume movements often fluctuate, not the Dow theory is wrong, but Dow conducted the research in a centralized market index stock, and every transaction that occurred was all recorded, so the volume data became valid and even then it was predicted more than a century ago, which could not necessarily match 100% with the current conditions.
While the characters in the forex market are different from the stock market. The nature of trading in a centralized currency makes transactions spread in many places around the world, starting from transactions that occur in banks to money changers, even in web money such as LR etc. Spot currency transactions in all parts of the world, there is no volume record, therefore if we use volume data on the spot forex market there will be a difference in its validity with the volume on the stock market.
However, as with previous posts, I referred a lot of this volume data to the commodity futures market on the Chicago Mercentile Exchange. One of the commodities traded on the exchange is the currency. Currency trading on futures exchanges includes accommodating the needs of the commercial sector to hedge. In general, product trade, both the products produced by manufacturing and processed products, are carried out in a forward manner, the contracts carried out today will only be sent in the future within a certain period of time, with prices determined according to the agreement. The time gap when a contract is dealt with the time the product is delivered, opens opportunities for uncertainty about changes, both changes in the value or price of the product itself and the value of the currency. Thus there is a potential risk for possible changes in product prices and the value of the currency in the future. If the change is a decrease in the value of both the product price and the value of the currency, then the supplier or producer will experience losses due to a decline in price and value, conversely if there is an increase, then the buyer or consumer who will suffer losses. This condition encourages the commercial sector to enter the cash / currency futures market to hedge against future uncertainties. Including the banking sector which is participating in transactions in the currency futures market in the context of financial transactions (credit transactions etc.) between banks globally.
The value of money transacted in the currency futures market is certainly very large, because it is carried out by companies both small companies and large giant class companies all over the world plus all commercial banks. Then in addition to the hedging commercial sector, which is involved in the transaction in the currency futures market, large traders aiming at speculation (profit taking) utilize the supply and demand that occur because of the needs of the commercial sector. The amount of transaction value that occurs in the currency futures market, will affect the movement of currency values, as a whole, thus the recorded volume can be an analytical material to measure the power of supply and demand on the currency in the currency futures market, where the imbalance of supply and demand will affect the movement of currency values.
The problem is that fluctuations in volume movements are not parallel to fluctuations in price movements, however, they are still useful as a means of confirming price movements, in order to reduce the error of this analysis, the method is done by looking at divergence and convergence between the price and volume. When generally between price movements and volume movements are still convergence, then there will not be a change in the direction of price movements, when divergence has occurred, then the direction of price movements will change.
But keep in mind, that this volume must be placed as a confirmation tool, the main one is the pattern of price movements on the chart itself, as long as price movements still meet the HH - HL criteria for up trend and LL - LH for down trend, we must use this as the main reference in making trading decisions, do not be reversed so that they are not biased. When the price has begun to move it does not match these criteria, in the changes that occur in the first candle that we confirm with the volume, if it turns out the volume shows divergence then the indication will
