Volume in Trading: Is It Key?

One of the basic mistakes traders make is ignoring volume. For example: you buy shares listed on the GPW, where a lack of volume leads to larger spreads. You can buy shares for 10,000 PLN, but with low volume, you lose 200 PLN (2%) on the spread. Slippage is another problem: you intend to buy USD/PLN on Forex, but the rate changes rapidly and you lose an additional 100 PLN because your order was not filled at the desired price. A lack of volume often leads to situations where your stop loss is not executed during sharp market movements.

Low volume makes it difficult to enter and exit positions smoothly. In practice, this means higher transaction costs and difficulties in executing strategies. When there are not enough buyers or sellers, you have to accept worse prices, which leads to losses and increases risk. In futures markets, a lack of volume can lead to greater slippage, meaning that orders are not executed at the expected price, affecting your profits and losses.

Assuming you have a starting capital of 15,000 PLN. Low volume can cause you to lose an additional 1-2% on each transaction due to spreads and slippage. Over the course of a month, with ten transactions, you could lose up to 1,500 PLN, which is 10% of your capital, just on transaction costs. In the long run, ignoring volume can lead to significant losses that accumulate and negatively impact your financial results.

To minimize the negative effects of low volume, start with:

• Market analysis: Choose markets with high volume (e.g., major currency pairs on Forex, futures contracts on the S&P 500).
• Setting limits: Instead of market orders, use limit orders to avoid slippage.
• Tracking volume: Use volume indicators as part of technical analysis to better understand the strength of price movements.
• Trying demo: Test strategies on demo accounts before applying them live to account for the impact of volume on your trading decisions.

Daily monitor the volume indicator on your favorite markets.