While trading binary options, it’s important to keep track of the price movement of an asset. But the price is not the only factor that matters. Other aspects of binary options trading, like volume, can also increase your chances of winning a trade.
Volume in binary options trading matters because by measuring volume, you can save yourself from making terrible trading mistakes. Also, it can help you identify better trading opportunities that you can grab to win a huge payout.
But do you know the right way of measuring volume in binary options trade? Or have you traded volume with binary options? This quick guide has detailed information regarding volume in binary options trading that will help you.
What is volume?
The theory of volume in binary options is rather simple than complicated. That’s because it simply refers to the number of assets that have been traded within a set interval of time, say hours or days.
You can easily analyze and notice changes in the volume of an asset because there are volume bars located in the trading chart. A change in the position of volume indicates a trend, just as a change in the price of an asset shows an emerging trend in the market.
If the traded amount of assets is high, that means its volume is high. Similarly, if the traded amount is less, the volume is also less.
Example of how volume works?
Here’s a quick example that will help you understand how volume works.
Assume a situation where you are interested in trading an asset at a price chart of 30 minutes. Now, the previous price period had a volume of 2000. So, it means that you have roughly traded around 2000 stocks in the last half an hour.
Most traders avoid using volume in binary options trading because they are not aware of how it works. Also, they don’t know how volume can be calculated.
Honestly, the volume is easy to understand. And you can identify the exact volume of any asset just by memorizing two things.
- Most people think that volume measures the number of trades. But in reality, it calculates the number of assets. For example, a value of 2000 states that in a given time, 2000 assets were traded. So, it does mean 2000 trades were made.
Remember that 2000 assets can be traded at once as a single large trade or in bits as multiple trades.
- Also, the volume does not measure the number of binary options. It only measures the number of assets. So, for example, a value of 2000 means, during that period, 2000 units of assets have been traded.
Why is volume important?
Certain traders argue that volume is unimportant, but that’s not true. Even though there is a mechanism for identifying data, volume can be used to identify trends. Thus, volume can be seen as an important aspect of technical analysis.
Another reason why volume matter is because it has extended implications. Trade volume is related to buying and selling assets. For example, the price of any asset will be higher if its demand is more. Similarly, an asset’s price will be low if the supply is higher.
This thing loosely translates that a downtrend brings down the volume. But an uptrend takes the volume up.
If you are using volume to trade binary options, you will likely encounter one of two situations. Price alteration of an asset at a high volume level or price alteration at a low volume level. But what does it mean? Well, the first situation shows the presence of a reversible trend. And the second scenario indicates temporary fluctuations.
The volume of assets and their price trend must be in the same direction for a favorable trading environment. That’s because, in this case, if the price decreases, so does the volume. And if the price increases, the volume will also increase.
You can also understand the stability of the market simply by seeing the volume. For instance, if the volume and price of an asset moves in the same direction, it means the trend will be stable. However, if they are in the opposite direction, it shows trend will get weak.
How to measure volume with Binary Options?
To use volume in binary options trading, it’s important to understand how it is measured. Ideally, volume is measured using two methods, i.e., through the direct method and a technical indicator.
Measuring volume directly
The direct way of measuring volume is also one of the simplest methods. That’s because this method includes software.
Multiple trading software has started showing volume data directly into the trading chart. Most of the time, volume is denoted by bars. A long bar shows high volume, whereas a short bar shows less volume.
You can use this information while making a trade. This way, your chances of winning a huge payout increase.
Measuring volume through technical indicators
You can measure the volume of an asset by using technical indicators, like Money Flow Index (MFI).
Measuring volume using this indicator requires you to do quick calculations to compare the rising to fall period. That means the indicator has multiple lengths of each period with volume.
Then the sum of rising periods is put in relation to the sum of falling periods. So, the generated result is between 0 to 100.
Here, a reading of 0 means money has flowed out of the asset. And reading of 100 indicates money has flowed in the asset. Lastly, a reading of 50 means the amount of money flowing out and in is the same.
How to trade volume with Binary Options?
Trading volume with binary options is as simple as calculating volume with binary options. That’s because trading binary options include two methods, i.e., direct method and trading using the indicator.
For trading directly, single or multiple candlesticks can be used. Whereas, for trading using technical indicators, MFI can be used. Check the reading of the MFI indicator. That’s because below 20 means oversold, and above 80 means overbought.
Using volume in binary options trading can enhance your chances of making a winning trade. It is because you can easily identify profitable trading environments and save yourself from making mistakes.
But it’s possible only when you know the right way of measuring volume with binary options. Along with this, you should also have a good understanding of how trading binary options is possible with volume.
Lastly, you need a good broker and an excellent trading strategy. Then you are all set to win a huge payout.