Importance of volume in analysis of a price trend

[Viktor Ka]

Many traders underestimate the importance of the volume based technical analysis. Volume is one of the parameters of a price trend and it delivers the information that may reveal something that cannot be found from price analysis.

You have to understand that a trend has several parameters. It is not just a change in price, it is also volume traded during this price change and volatility of this trend. By disregarding volume and volatility with solely focus on price analysis, a trader, an investor or whoever responsible for making a trading decision bases his or her analysis only on partial information received on price. Such analysis may lead to the situations when a price based trading system start failing by wiping out all previously.

It is essential to have a complete trend analysis which would include price, volume and volatility technical indicators in one complex. Only then you will see the complete picture and nothing will be hidden behind the scene.

So, what information volume may deliver to you and how it could help you in your trading? Volume reveals sentiment of traders. It may tell you whether current price moved on quiet regular trading or it was a wave of greedy buying or it was an explosion of panic selling. Volume also will you money flow. By analyzing volume you may see whether money are injected in or pulled out of a stock or any other tradeable security. The third thing that volume analysis may tell you is approximate volume of funds accumulated during up-move or distributed during a down-move, which may help you to evaluate how strongly your stock or other security you trade is overbought or oversold.

You may find the complete list of volume based technical indicators with link to detailed description and tutorial about how to analyze volume at
http://www.marketvolume.com/technicalanalysis/

I would highly recommend going through it as it could substantially improve your trading performance. Remember, volume is your friend – it may help you to reveal the actions of other traders, especially the actions of Smart Money.