My forex trading strategy using volume indicators

Market analyst and trading specialist Quoc Dat Tong breaks down how volume indicators can reveal the true conviction behind price movements. In this guide, he explains how tools like the volume profile indicator, OBV, and VWAP can strengthen your trading strategy and improve decision-making.

I’ve been using volume indicators to confirm my market moves for a long time. You can do the same if you apply the right strategies and learn to interpret the signals correctly.

It’s easy to get caught up in price movements when examining the market. However, you must remember that price movements tell a large part of the story, but they don’t tell the full story. They are a noisy way to get a narrative. That’s where volume indicators come into play.

What are volume indicators, and how do they work?

Let’s keep this basic before we introduce complications. Volume indicators are tools that measure the amount of trading activity in a market over a given period. They show how many shares, contracts, or lots have been bought and sold, and in doing so, help you to understand the strength behind a price movement. In the forex market, traders often rely on forex volume indicators to gain a clearer sense of conviction behind moves in pairs like EURUSD or GBPUSD, even though the market is decentralized. When combined, On-Balance Volume, Chaikin Money Flow, and the volume profile indicator can reveal the conviction behind currency pair movements. In other words, price shows direction, volume shows conviction. 

A standard XAUUSD chart over four hours, showing two volume indicators. I’ll talk through A/D and OBV in more detail below, but for now, you can see that as the price moves upward and downward, the volume indicators provide clues about the strength of that movement. For instance, the OBV is sitting at 1.1M, suggesting buying pressure is stronger than selling pressure, supporting an uptrend.

The most popular volume indicators I use

There are numerous volume indicators to choose from, and each one does something slightly different. The most popular ones that I use are OBV, A/D, CMF, and VWAP. So what are they and how do they work?

On-Balance Volume (OBV)

The On-Balance Volume works by adding the volume of a trading period to a cumulative total when the price closes higher, and subtracting the volume when the price closes lower. Alternatively, if the price is moving in one direction but the OBV is moving in the opposite direction, this can signal a potential reversal or weakening trend. 

This graph shows BTCUSD. Just before 08:15, the price of BTC levelled off, while the OBV remained on a steady incline. This divergence, while subtle, signalled that buying pressure was continuing, but the price wasn’t responding, indicating weakening momentum. Shortly after, you can see BTC take a noticeable drop, illustrating how even minimal OBV divergences can serve as an early warning of a potential reversal or pullback in the market.

Accumulation/Distribution (A/D) Line

The Accumulation/Distribution line is different from OBV for two reasons. First, it takes into account the position of the closing price within the period’s range, not just whether the close was higher or lower than the previous period. Secondly, it weights volume according to price movement, so large volume on a bar that closes near the high contributes more to the A/D line than a bar that closes near the low. 

Here’s the BTCUSD chart, but with A/D added instead of OBV. Coming up to 09:50, you can see the price of BTC begin to fall, while the A/D line remains relatively steady in an upward trend. This demonstrates accumulation during a minor consolidation. Smart money continues to buy while the price takes a breather, supporting the continuation of the uptrend.

Chaikin Money Flow (CMF)

I use Chaikin Money Flow because it combines both price and volume to measure buying and selling pressure over a specific period, giving a clearer picture of market sentiment. Unlike simple volume indicators, CMF shows whether money is flowing into an asset or out of it: a positive CMF value indicates buying pressure, a negative CMF value indicates selling pressure.

Here’s CMF in action on the BTCUSD chart. Notice how it aligns—and even precedes—the upward price trend, signaling that the trend is strong and buying pressure is building before the price fully reflects it.

Volume-Weighted Average Price (VWAP)

The last indicator I want to mention is Volume-Weighted Average Price, which shows the average price of an asset weighted by volume, painting a more accurate picture of where most trading activity has occurred throughout the day. This is particularly useful for intraday traders, especially when trying to identify key support and resistance levels. Some traders also complement VWAP with the volume profile indicator, which maps trading activity at specific price levels rather than over time, providing a clearer view of where major supply and demand zones exist, mapping out high-probability trading zones as part of a broader volume profile strategy.

Here’s an example of an EURUSD intraday chart, with VWAP plotted alongside price. Notice how the VWAP line closely tracks the price throughout the session, serving as a dynamic support and resistance level that indicates where the bulk of trading activity is concentrated.

If you’re still unsure how each indicator really differs, here’s a table that can sum it up more clearly:

How I use volume indicators in practice

Next comes what every trader wants to learn: how to use an indicator to conduct trades. From the table above, you can see that each indicator has its own strength and purpose. I don’t only rely on one; I look for confirmation across multiple indicators to increase the reliability of my trades.

Confirming trend strength

For instance, when I see EURUSD breaking resistance with rising OBV, I treat it as a strong signal. Why? Rising volume = stronger moves.

Spotting reversals early

Meanwhile, the divergence between price and volume tells me that the current trend may be losing momentum, and a reversal or pullback could be approaching. For example, if the price continues to make new highs but OBV or CMF starts to flatten or decline, I know that buying pressure is weakening despite the upward move.

Filtering out false signals

There may also be cases of breakouts: low volume = high risk. When I see EURUSD break a key resistance or support level, but the A/D and CMF indicators show little to no corresponding volume increase, I treat it with caution. Low volume on a breakout often means the move lacks conviction and might be a false signal, so in such cases, I either wait for confirmation on higher volume or avoid the trade altogether.

What are the best volume indicators for different trading styles?

Using the steps mentioned above helps me with my own specific trading style, but everyone’s strategy is unique. You might be a day trader with a focus on quick intraday moves, or a swing trader looking to capture larger price swings over several days or weeks. Obviously, if you are specifically interested in forex, then some forex volume indicators and related tools will work better for you. With this in mind, some volume indicators will work better than others.

Day trading with VWAP and CMF

I’ve found that day trading with VWAP and CMF can be particularly effective because both provide real-time insights into intraday buying and selling pressure. VWAP helps you identify where the bulk of trading activity is concentrated, while CMF shows whether money is flowing into or out of your asset. 

Some day traders also incorporate a volume profile indicator to visualise where the highest trading volume has occurred at specific price levels—helping them identify intraday support, resistance, and fair value zones more precisely.

By combining the two, you can then identify high-probability entry and exit points, while avoiding any trading against weak or unsustainable movements.

• VWAP for intraday confirmation: VWAP shows you where most trading activity has occurred, helping you gauge fair value.
• CMF for spotting buying/selling pressure shifts: CMF indicates whether money is accumulating or distributing, helping you to detect early signs of reversals or weakening trends.

Swing trading with OBV and A/D

For swing trading, it can be a good idea to rely on OBV and the A/D line to get a longer-term perspective on market trends. Unlike intraday indicators, this will help you confirm the strength of moves over longer time periods. 

OBV can serve as a trend confirmation, tracking cumulative buying and selling pressure to indicate whether a trend is supported by volume. On the contrary, A/D can serve as your accumulation and distribution gauge, indicating whether smart money is quietly buying during pullbacks or selling during rallies.

Volume indicators and volume profile strategy example: Gold (XAUUSD) trade walkthrough

Let’s walk through a practical example. I’m looking to make a trade in the XAUUSD market, and I want to use volume indicators to confirm the trend and time my entry as accurately as possible.

• Identify the trend: I’d start by analyzing a higher-timeframe chart—such as a 4-hour chart or a daily one—to determine the prevailing trend, and then confirm trend strength with OBV and the A/D line.

• Hold for entry: I’d then switch to a lower timeframe—around one hour or thirty minutes—to spot an ideal entry, and look for a pullback to a support level or consolidation. When the price displays a bullish candlestick pattern at support, accompanied by volume indicators that confirm strength, that will be my signal to enter. Sometimes I also incorporate a volume profile strategy, which highlights price levels where the heaviest trading has occurred, helping me refine entries around strong support and resistance zones.

This is the entry setup with OBV, A/D, and CMF aligned.

• Manage the trade: From there, I’ll place a stop loss just below the recent swing low, and monitor the trade using volume indicators to track whether the trend remains strong.

• Hold for exit: When a divergence between the price and OBV or CMF occurs, I’ll exit the trade to lock in profits or reduce risk. Even if the price is still moving in my favour, the divergence indicates that buying or selling pressure is fading, which means a reversal could be imminent.

Divergence is now indicating potential reversal, which shows me the exit point.

Tips for using volume indicators effectively

Of course, there are other tips for using volume indicators effectively, but here are some of mine: 

• Confirming price action with volume: Confirm price action with volume, looking for alignment between both price movements and indicators. 

• Combining volume with RSI/MACD for stronger signals: Combine volume with RSI and MACD, with RSI showing you overbought/oversold conditions, while MACD confirms the trend direction.
• Use a demo account to test setups risk-free: Using a demo account is another tip that I can’t emphasise strongly enough. Before applying any of these strategies with real money, it’s crucial to practice on a demo account and try out a range of combinations in a risk-free environment. 
• Relying on more than one indicator: Never stick to just one indicator; you will want to have multiple to support each other. This will provide you with a comprehensive understanding of market sentiment, enabling you to anticipate reversals with the highest possible probability. 

Is a volume indicator strategy right for you?

Whether the volume indicator strategy is right for you all depends on your trading style and strategies. This is why using a demo account is so important. Volume indicators are best suited for day traders and swing traders who want to confirm moves. However, scalpers can also use VWAP, provided they account for volatility. 

The key is to practice in the Exness demo account before going live and thoroughly check whether it aligns with your trading goals, risk tolerance, and preferred timeframes.

Trading glossary

Point of control (POC)

The point of control is the price level on a volume profile chart where the highest trading volume occurred during a given period, showing where the most trading activity and market interest were concentrated. It is one of the key components of volume profile trading strategies, often acting as a major reference point for future price movements, support and resistance levels, and fair value zones.

High volume node (HVN)

A high volume node represents a price zone with significant trading activity. This is where the total volume traded is high, and the market has spent more time accepting value. In volume profile trading, HVNs often form natural support or resistance levels, and traders watch for high volume node retracements to refine entries based on market structure and price action.

Low volume node (LVN)

A low volume node is an area on the volume profile indicator with minimal trading activity, indicating volume distribution gaps where price moves rapidly through the zone. These LVNs often sit between significant price levels, and in many trading strategies, they act as potential breakout regions where price breaks can accelerate due to limited market interest at those price levels.

Volume-Weighted Average Price (VWAP)

The Volume-Weighted Average Price is the average price of an asset weighted by total trading volume, making it a more meaningful indicator than a simple average price for tracking intraday market trend and sentiment. Traders use VWAP—especially in forex trading and session volume profile analysis—to identify fair value, dynamic support/resistance, and whether a currency pair is trading in line with or against market strength.

On-Balance Volume (OBV)

On-Balance Volume is a volume indicator that tracks increasing volume, up volume, and selling pressure by adding or subtracting volume traded based on whether the price closes higher or lower. OBV helps traders compare market sentiment, identify bullish or bearish divergences, and confirm the strength of a market trend, especially when combined with other indicators like the Money Flow Index or RSI.

Final thoughts on mastering volume indicators

Quite simply, volume equals conviction behind the market. This means price movements accompanied by strong volume are more likely to be genuine and sustainable, while moves on weak volume may be prone to reversal. 

Whether you rely on traditional volume tools or the volume profile indicator, the goal remains the same: understand the conviction behind price movement and act accordingly.

Mastering volume indicators is all about learning the story behind the numbers and ensuring you’re not wasting the information on offer. Again, I recommend testing these indicators on the Exness demo before applying them in live trades. If you do that, you’ll have a far better chance of making sense of them and getting your entries and exits timed to a tee. 

Frequently asked questions

What is the 80% rule in volume profile?

The 80% rule in volume profile suggests that when price enters the value area (the zone where about 70% of trading volume occurred) from outside and holds for several bars, there is an 80% probability that it will travel across the entire value area. Traders use this rule to anticipate future price movements, especially when price re-enters a balanced market structure with strong volume profile data supporting continuation.

How to correctly set up a volume profile indicator?

To correctly set up a volume profile indicator, choose the price range you want to analyse—such as visible range, a specific time period, or a session volume profile—and ensure the settings display the value area, high volume nodes, low volume nodes, and the Point of Control (POC). This setup allows traders to read volume distribution across price levels rather than over time, making the profile indicator useful for identifying key support, resistance, and fair value zones.

Which is the best volume profile indicator?

The “best” volume profile indicator depends on your trading platform, but tools that display volume by price, POC, HVNs, LVNs, and value area are considered the most complete. Many traders prefer the Visible Range Volume Profile because it dynamically adjusts to the section of the chart you're analysing, offering highly relevant information for volume profile trading strategies.

How to interpret a volume profile chart?

A volume profile chart displays the trading volume at specific price levels, enabling traders to identify areas of strong acceptance and rejection. High Volume Nodes indicate zones where the market spent time and may act as support or resistance, while Low Volume Nodes show regions where price moves rapidly due to minimal trading interest. This structure helps traders predict likely reaction zones and understand market sentiment.

Is there a volume indicator for forex?

Yes—although the forex market is decentralized, traders use tick volume, which reflects the number of price changes and correlates strongly with actual trading activity. Popular forex volume indicators include On-Balance Volume (OBV), Chaikin Money Flow, the Money Flow Index, and volume profile tools provided by many modern platforms.

Which volume indicator is best?

There is no single “best” volume indicator, but OBV, CMF, and the Money Flow Index are widely used because they combine price action with buying or selling pressure. For structural analysis, the volume profile indicator is one of the most effective tools for identifying where significant trading activity has occurred and where future reactions may occur.

Which indicator is used for volume?

Common indicators used for volume include On-Balance Volume, Accumulation/Distribution, Chaikin Money Flow, Money Flow Index, and volume itself (tick or total volume). These indicators help traders understand market strength, selling pressure, and how volume behaves relative to price movements.

What is volume profile strategy?

A volume profile strategy uses volume distribution across price levels to trade around POC, value areas, HVNs, LVNs, and key support or resistance zones. Traders look for setups such as high volume node retracements, LVN breakouts, and value-area rotations to anticipate likely price movements based on where significant trading activity has taken place.