Section 10: Volume
Volume is typically plotted below price, sharing the Time axis. It is more times than not used to confirm price direction – as the old rule says, “as goes price, so goes volume”. As prices move within a consistent trend, one anticipates higher volume due to the increasing participation in buying, driving prices higher. The lack of volume confirmation is a warning sign that the trend is losing strength and a reversal may occur.
Volume confirmation and what to expect when comparing price to volume is covered first.
Price pattern breakouts often times requires volume characteristics to confirm the move. There are also volume characteristics that help predict market bottoms and tops.
Specialty indicators based on trading volume can be used to measure the strength of trend and identify divergences.