I'm going to write something up short on volume. Now volume was something that I came to later with my trading as I didn't really understand it at first when I read about it and instead came to intuitively understand it later after a few years under my belt. I've gone back over what my favourite websites say and the best summary as usual comes from www.thepatternsite.com as Mr Bulkowski backs up every thing he writes with solid studied evidence. He is of the opinion that overall volume doesn't really have a big impact on how a trade pans out as its leaning towards random as to whether it has an impact or not. Personally, I do tend to agree but I do personally look at volume as I trade a little differently.
Volume is like a minor indicator or a singular signal. Just because you have a lot of volume action or a volume spike it can mean nothing alone, but when weighed up with other indicators it can help in making a decision.
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So I think we know enough little tricks so far that you can do a little analysis yourselves. What I've gone and done here is marked out a couple of significant little volume spikes with the yellow lines and a couple of trends on the volume. The straight lines you can see mark points where trend either change or become cemented. See if there are any signals you can spot that match up. The little curve at the bottom in the middle of the chart is interesting. There is a bit of activity going on and then as it drops off, the share price takes a dip with it. As there are less and less hands to trade between so the stock becomes less liquid and the price nose dives as people try to sell at any cost while they think its going down. The inverse is true in that the price may raise faster and faster as people try to scramble on board as it goes to the moon. But again, as volume drops off, there are less people to sell to so eventually a fast rise on low volume can crash also as people realise there is no one to take profits on at lofty valuations.
The little gold volume uptrend sort of shows the latter. We have volume increasing on trend and as it increases faster and faster so to does the share price.
Another thing to watch for which I haven't got on here is volume volatility. If you notice volume gets choppy when before it was flat, prick your ears up and take a closer look.
So personally I use volume to confirm what I may already see in the charts. If the volume doesn't confirm it, I don't worry to much and make a decision based on other things. Kind of like if the car in front of you doesn't have its brake lights come on but then it starts to get closer and closer and at an increasing rate, it is usually prudent to perhaps at least slow down.
