Volume is the number of shares traded during a specific time frame, for example, hourly, daily, weekly, or yearly. Shares are traded in lots of 100 and volume is reported to reflect the number of such lots traded during a given period.
On its own, volume cannot be used as a technical guide. Volume, however, is very important because of the clues it provides about price movement.
A chart pattern should never be exclusively relied upon as an indicator of the market. Combine a chart pattern with information about volume, however, and a technical analyst can gain insight into both the chart pattern and into the market's behavior.
Volume is an important element in assessing the intensity of price movements. An old trading adage says, "price follows volume." The adage, however, is not quite complete. In fact, in the technical analyst's tool kit, measurements of price and volume are interdependently coupled. The adage should be amended, "price follows volume and volume follows price."
Tracking volume is useful to gauge the commitment level of buyers and sellers. Volume is an indicator of a trend's health. A healthy uptrend should have higher volume on its upward legs and a lower volume on its downward (corrective) legs. Similarly, a healthy downtrend should have a higher volume on its downward legs and lower volume on its upward (corrective) legs. This information can, in turn, be used by investors to position themselves for possible trend reversals.
Low volume is often an indicator of indecisive expectations regarding the price of a stock. This period of indecisiveness is characteristic of a consolidation period in which price moves sideways. If the primary trend is moving down, volume should decrease as price begin to rise. If the primary trend is moving up, volume should decrease as price starts to fall.
High volume often occurs when a stock or the market has topped. Similarly, when the market hits bottom, volume, fueled by panic selling, tends to increase.
Ascending Continuation Triangle Chart Patterns
Continuation Diamond (Bullish) Chart Patterns
Continuation Wedge (Bullish) Chart Patterns
Cup with Handle Chart Patterns
Head and Shoulders Bottom Chart Patterns
Megaphone Bottom Chart Patterns
Pennant (Bullish) Chart Patterns
Symmetrical Continuation Triangle (Bullish) Chart Patterns
Upside Breakout Chart Patterns
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Sincerely,
MG
