Tick volume is an indicator that measures every trade, up or down, along with the volumes accompanying those trades over a given period. When analysing the market as a whole, traders are usually looking for a change of trend or its continuation. To trade effectively, a trader wants an edge that helps determine whether a trend has a chance of carrying on.
How volume works
Volume is the combination of buying and selling. If buying volume exceeds selling volume, the value of a currency rises and its price goes up. The same holds in reverse. This is the basic theory of order volume, and a great deal has been written about it.
- The problem is that this theory works beautifully on centralised markets with official volume data. Shares or options are the obvious examples.
- For the most heavily traded market of all, however, no real order volume data exists. We are talking about forex, of course. The information can be obtained, but for the average and especially the beginning independent trader it is out of reach.
The only thing available is what is known as tick data. It shows how much ground the price had to cover in a given period, meaning within a single candle.
The difference between volume and tick volume
The trouble starts when a trader does not grasp the difference between volume data and tick data. Two examples explain it best.
Example 1
- Take the pair GBP/USD. Say 1000 contracts are sold and only 20 bought. What happens to the price?
Buyers have no chance and the price drops without hesitation. On a volume indicator we would see elevated order volume. But looking at tick volume, the figure the broker supplies and which we see directly in the platform, we find only a small change compared with the previous bars.
Why? The reason is simple. Tick volume does not show order volume, only the movement that resulted. So if the price fell without hesitation by, say, 100 pips, that movement is just 100 pips.
Example 2
- For the second example take GBP/USD again. The difference is that now we have 500 contracts sold and 500 bought. What happens to the price this time?
With supply and demand balanced, the market is undecided. The price will swing from side to side within a narrow range and will most likely end up close to its opening value.
On a real volume indicator we would see roughly the same order volume as in the first example. On tick volume, though, we would see a far higher figure. That is because the price covered a longer path before the period closed.
What tick volume actually counts
Both examples point to a simple definition worth remembering. A tick is a single change in price, by a pip or a fraction of one, up or down. Tick volume is the number of such changes within a given candle.
| Measure | What it counts | Where you find it |
|---|---|---|
| Real volume | the amount traded | exchanges, so shares, options, futures |
| Tick volume | the number of price changes | forex platforms |
The difference between them is not one of accuracy, then, but of measuring two different things. Real volume answers how much changed hands, tick volume answers how often the price moved. The second is a measure of market activity.
That is precisely why tick volume is any use in forex at all. When the market is busy, more trades take place, quotes update more often and there are more ticks. When it is quiet, there are few. Activity and volume are not the same, but they usually move in the same direction, and that is enough to make tick volume a workable stand-in where real volume is unavailable.
Where to find tick volume
In MetaTrader 4 and 5 it is the Volumes indicator. You drop it on the chart and it draws as bars beneath the price. On currency pairs it does not show the amount traded but the tick count, even though it is simply labelled volume. That is the source of most of the confusion: the trader sees the word volume in the platform and assumes it is the same figure they know from shares.
On share and futures markets in that same platform it really is volume, because the exchange publishes it.
How to work with it in practice
Tick volume gives no signal by itself. It becomes useful the moment you set current activity against what came before.
Confirming a breakout. When the price breaks a level and tick volume jumps sharply at the same time, more participants stand behind the move. When the same level gives way quietly, on activity no different from the preceding hours, the signal is weaker.
Indecision. Example 2 above is exactly that case. High tick volume on a narrow candle range does not mean strength, it means the price walked a long way and arrived nowhere.
The daily rhythm. Activity in forex follows a regular shape depending on which exchanges are open. It peaks in the overlap of the London and New York sessions and bottoms out in the Asian afternoon. Tick volume tracks that rhythm faithfully, so you can use it to check whether current activity is normal for the time of day or unusually high.
Cross-checking with futures. If you need real volume for currencies, there is a route. Currency futures trade on an exchange, so their volume is published. The euro futures contract can serve as a rough cross-check on what tick volume shows on the spot pair EUR/USD.
In summary
Tick volume is not an inferior version of volume, it is a different measure. It records how often the price moved, not how much money changed hands. In forex it is the only thing an ordinary trader has, and it works as long as you keep two things in mind: the absolute figure says nothing, and numbers from two platforms are not compared.