The Volume Indicator: Mastering Market Conviction in 2026

Price moves because orders hit the market. Volume tells you how intense that fight was. In technical analysis, the simplest volume indicator is the standard vertical histogram under the chart. Each bar shows how much market activity happened inside that candle.

If you want to understand how volume behaves during a breakout, a fakeout, or a news spike, don’t risk real capital. We use Forex Tester Online as a trading simulator and backtesting platform to replay historical data and watch volume bars build candle by candle – then measure how often those signals actually work.

Let’s take a closer look at how effective and useful this indicator is.

Volume indicator on Forex Tester Online

What is the Volume Indicator?

The Volume Indicator is the most basic tool for reading trading volume and market activity on a chart. On most platforms it’s shown as a vertical histogram below price.

• Each bar = one candle.
• The bar height = how much activity happened during that candle.
• The indicator does not tell you direction by itself. It tells you intensity.

On a typical chart you’ll see volume bars rising and falling like a skyline.

Tall bars mean the market was busy: more transactions, more price updates, more interest.
Short bars mean the market was quiet: less participation, less urgency, often “wait and see.”

Some platforms color bars green/red based on whether the candle closed up or down. Treat that as secondary. The key information is bar height vs recent bars and vs an average.

Most professional use cases fit into four buckets (we’ll detail them in the next sections):

• Breakout confirmation
• Exhaustion / end of move
• Volume divergence
• Low-volume retests

In short, you need to remember this line to understand it:
Price shows direction. Volume shows commitment.

How Volume is Calculated

Volume looks simple on the chart, but the logic behind the bars depends on the market. There are two main cases: real volume on centralized exchanges and tick volume in decentralized Forex.

1) The Stock Market: Real Volume Calculation

On centralized exchanges (stocks, and many futures), volume is a direct count of how many units changed hands during the period.

Formula:

Example:
Trader A buys 100 shares of NVDA from Trader B – volume = 100.
Later, Trader A sells those 100 shares to Trader C – total volume for that period = 200.

So “trading volume” here is literal: shares/contracts traded.

2) The Forex Market: Tick Volume Calculation

Spot Forex is decentralized. There is no single tape that prints total contracts or shares. Most platforms count ticks instead.

Every time the quote changes (up or down) during the candle, the counter adds +1.

That’s why here we have a different formula:

What a tick means in practice is that it’s a recorded price update from your broker’s liquidity feed. If price updates rapidly, tick volume rises.

Higher institutional activity usually makes price update more often. So tick volume works as a proxy for market activity / intensity. It’s not a money total, and different brokers can show different tick counts, but the patterns are often consistent enough for price action decisions.

3) The Volume Moving Average (VMA)

A single volume bar means nothing by itself. You need a baseline.

Most traders use a simple moving average of volume (often 20 periods) to label volume as “high” or “low.”

Formula:

How to use it:

• Volume bar above the VMA – above-normal activity (more meaningful)
• Volume bar below the VMA – below-normal activity (less meaningful)

To make this skill automatic, you need to read volume in context, not as a standalone number. A volume bar only matters versus recent bars, versus its moving average, and versus what price did on the same candle.

Next, let’s see how to turn these calculations into actual trades.

How to Read Volume Bars

The volume histogram is the “crowd noise” under your chart. Price can move on a quiet crowd, but those moves fail more often. What matters is relative volume: compare the current bar to recent bars, and ideally to a 20-period volume moving average (VMA). High or low only makes sense in context.

Classic Volume indicator signals

Breakouts

A clean breakout is easy to spot on price. The hard part is judging if it has real participation.

When price leaves a range or breaks a level, you want to see volume expand right after the break. That’s the market saying: “Yes, we’re trading this new price.” High volume after the breakout is a sign of a healthier move. Low volume after the breakout is where fakeouts live.

A practical read:

• Break + volume above VMA = better odds the move keeps going.
• Break + volume stays muted = treat it as suspicious until price proves itself.

Exhaustion

Exhaustion is the opposite problem: volume is huge, but the move stops working.

After a long run, you’ll sometimes get a “climax” candle: volume spikes to an extreme, yet price can’t extend much further. You often see long wicks, messy closes, or immediate loss of follow-through. That’s not a guaranteed reversal, but it’s a strong warning that the trend may be running out of fuel.

How traders handle it: they stop chasing, tighten risk, and wait for price to confirm (structure break, failed push, reversal close).

Divergence

Volume divergence is when price makes a new extreme, but volume doesn’t confirm it.

For example, price prints a higher high, but the volume bars are smaller than on the previous push. That often means the move is being carried by less participation. Divergence doesn’t time the top or bottom. It just tells you: “This is weaker than it looks.”

The best divergences show up at obvious levels (prior highs/lows) after a stretched move.

Low-Volume Retests

After a breakout, price often comes back to retest the level it broke. Volume helps you judge if that retest is likely to hold.

The breakout happens, then the pullback to the level comes on lower volume. That usually means the other side isn’t pressing hard, so the level can act as support/resistance flipped. If the retest comes with rising volume and slices through the level, that’s a common failure pattern.

Next up we’ll cover why volume can fool you, even when the bars look “perfect.”

Why Volume Can Be Deceptive

Volume can look “convincing” while telling the wrong story. In some markets, reported volume can be inflated by wash trading – non-genuine trades that create the illusion of heavy interest and pull traders into bad entries. In thin liquidity, you also get sharp volume spikes that are more about a few prints, wider spreads, or short-term order flow than real conviction, so the histogram screams “activity” but price doesn’t follow through.

And in Forex, remember you’re usually reading tick volume. It can jump simply because quotes update rapidly on a broker’s feed, not because large money actually traded, so treat it as a proxy for intensity, not a cash counter. 

Case Study: Backtesting Volume Indicator with Forex Tester Online

Reading the Volume Indicator is a timing skill. On a static chart, every volume spike looks obvious. In live markets, it’s messy: the bar is still forming, the candle is still changing, and your brain wants to guess. The fastest way to build real confidence is to combine a good indicators-based strategy with backtesting. You watch the volume bars grow in real time, make the call, then see what actually happened – without burning real capital.

We keep it simple: one market, one idea, clear rules.

Pick a liquid instrument and a clean concept like breakout confirmation or low-volume retests. Then define what “high volume” means (usually bar above VMA(20)) and what “failure” means (breakout that snaps back and closes back inside the range within 1–3 candles). This turns “volume feels strong” into something you can measure.

Add realistic trading costs. Volume signals often look great until spreads, slippage, and commissions hit the edge.

We use Forex Tester Online as backtesting software because it lets us replay the market with tick-level detail and control the pace, so we can make decisions while the candle is forming – not after. It also supports multiple synced charts (useful for top-down context when you trade price action around levels).

1) Get access

Go to the FTO website, click Get Started, create an account, pick a plan, and sign in.

2) Create a project

Open Forex Tester Online, start a new project, and choose a high-liquidity pair like EUR/USD. Set your date range (start with 3–6 months, then scale up). Add realistic costs (spread, slippage, commissions) so the results don’t turn into fantasy.

3) Add the standard Volume indicator

Open the indicator list and add Volumes (the basic vertical histogram). Then add a 20-period moving average on volume if your platform supports it, or use visual comparison to recent bars.

4) Drill bar-by-bar

Run the replay in bar-by-bar mode when you reach a key level (range high/low, prior swing, session high/low).

The moment a volume spike appears, pause and label it in plain language:

• Is this spike supporting a real break (clean close beyond the level, follow-through), or is it a fight that ends in a wick and snapback?
• If this is a retest, is volume drying up (good) or building (warning)?

This is the “aha” moment: the Volume Indicator becomes useful when you see it develop with price action, not after.

5) View Analytics to track the numbers that matter

Don’t just count wins. Track:

• win rate and average R
• max drawdown
• how often high-volume breakouts follow through vs fail
• how often low-volume retests hold

FTO will also give you personal advice on trading style and psychology.

Test at least 200 trades across different months (quiet weeks and news-heavy weeks). Split your testing: build rules on one period, then verify on a later period. Keep changes small – one variable at a time.

6) Iterate and refine

Take your time. Spend as much time as needed until you find your perfect strategy.

Top Derived Indicators

The basic Volume Indicator histogram is the raw feed. Most “advanced” volume indicators are just different ways to process that same trading volume into a cleaner signal.

On-Balance Volume (OBV) turns volume into a running pressure line: it adds volume on up-closes and subtracts it on down-closes. Traders use OBV to spot volume divergence early, especially when price action creeps higher but the OBV line stops confirming.

VWAP (Volume-Weighted Average Price) mixes price and volume into one benchmark price level. It’s popular for intraday context: when price is above VWAP, bulls usually have control; below it, sellers do. Many traders use VWAP as a filter for breakout confirmation and for judging whether pullbacks are “cheap” or “expensive” relative to the day’s volume.

Chaikin Money Flow (CMF) is a volume-based accumulation/distribution tool. It looks at where the candle closes inside its range, then weights that by volume to estimate whether money is flowing in or out. It’s another way to sanity-check trend strength and divergence when the volume histogram alone feels noisy.

Summary Checklist for Success

Review this checklist before you go live:

📝 Is the current volume indicator bar clearly above its 20-period VMA?
📝 Does the bar color match the candle direction (just as context, not a signal)?
📝 Did you verify this price action + volume setup in a simulation on Forex Tester Online?

If it works in theory and it works on historical data, then it may work on the real market.

Disclaimer

Trading involves risk. The indicators in this article are for educational purposes only and are not financial advice. Past performance does not guarantee future results. Always test strategies before using real money.

FAQ

Is there a “best” volume indicator?

No single volume indicator wins in every market. For most traders, On-Balance Volume (OBV) is the cleanest way to read pressure and volume divergence, and VWAP is the best intraday benchmark for context and breakout confirmation. Still, the plain Volume Indicator histogram is the right starting point. It’s the raw trading volume / market activity input that all the derived tools build on.

Does the color of the volume bar (red or green) matter?

Less than people think. The color usually just mirrors the candle close: up-close vs down-close. It doesn’t mean “only buyers” or “only sellers.” What matters is the vertical histogram height and what price did on that candle. A tall bar means high market intensity – the fight was loud – even if the price barely moved.

How do I know if the volume is “high” or “low”?

Compare, don’t guess. Add a 20-period Volume Moving Average (VMA) to your volume indicator (or mentally average the last 20 bars). If the current bar is clearly above that baseline, treat it as high activity and give the price signal more weight. If it’s below, be more skeptical – especially on breakouts and retests.

Is volume accurate in the Forex market?

Forex doesn’t have a single central tape, so you won’t get “real” exchange volume. Most platforms use tick volume: how many times price updated during the candle. It’s not a money counter, but it tracks market activity well enough to use in technical analysis, especially when you keep your comparisons on the same broker/feed and focus on relative changes.

How can I practice reading volume without losing money?

Turn it into reps. Volume reading is price action + context, and you only get good by seeing thousands of candles form with their volume bars. We do it in a trading simulator using backtesting software like Forex Tester Online: replay past sessions, pause on spikes, label “breakout / fakeout / retest,” then check the outcome. That’s the pro shortcut – Volume + Backtesting builds confidence without paying for mistakes with real capital.