A volume-based trading strategy uses data on trade intensity in the market as additional confirmation of a price move's direction and strength. Unlike purely price-based indicators, volume shows how actively market participants back a current move, which helps tell sustainable trends apart from weak ones prone to reversal.
Why volume matters for analysis
A price move without volume confirmation is considered less reliable: a price rise on low volume can mean only a small number of large players are involved rather than broad market agreement with the direction. Conversely, a sharp rise in volume alongside a price change signals mass participation by traders, raising the odds of continuation.
Popular volume indicators
A few tools are commonly used for volume analysis in binary options:
- On-Balance Volume (OBV) — a cumulative indicator showing the balance of volume on rising versus falling candles.
- Volume — the simplest indicator, showing each candle's volume as bars below the chart.
- Volume-Weighted Average Price (VWAP) — a volume-weighted average price, often used as a dynamic support or resistance level.
- Money Flow Index (MFI) — an oscillator combining price and volume to gauge overbought and oversold conditions.
It's worth noting that on Pocket Option's synthetic OTC assets, real market volume isn't directly available, so volume analysis is more relevant for currency pairs and exchange-traded instruments.
How to use volume to confirm signals
Volume is rarely used as a standalone signal — more often it serves as a filter for other strategies. A few practical rules:
- A level breakout is confirmed by volume rising above the average of recent candles.
- A trend continuation is confirmed by stable or rising volume on each new wave of the move.
- Falling volume while price keeps rising can signal weakening momentum and an approaching reversal.
- A sharp volume spike without a significant price move sometimes signals a strong step in one direction is coming.
Combining volume with other indicators
Volume is especially useful combined with level analysis and indicator divergence. For example, when breaking a significant level, as described in the article on the breakout strategy, volume confirmation significantly lowers the odds of a false breakout. Likewise, divergence between price and volume can precede a reversal, similar to oscillator divergence, described in the article on the indicator divergence strategy.
Limitations of volume analysis in binary options
The main limitation is that volume data availability depends on the specific asset and quote source, and on some instruments the volume reading can be an inaccurate approximation rather than real global trade volume. This should be factored in when interpreting signals, especially on less popular assets.
Automating volume analysis
Calculating volume indicators and combining them with other signals can be automated. A trading robot for Pocket Option can factor in volume as an additional filter when generating recommendations — details on the features page.
Conclusion
A volume-based trading strategy raises the reliability of other signals by confirming the real strength of a price move. Use volume as a filter for breakouts and trend signals, not as a standalone forecast source. Automatic volume tracking is available in the robot's plans.