7/13/2020 Volume

After looking at the various chart patterns explained so far, you'll notice that
consideration has been given to volume. Simply put, volume is the number of
contracts traded over a period of time. And since even the most reliable of patterns
will fail sometimes, volume can be used as another tool in determining what's
happening within the market and more specifically what's happening within the
pattern.

It is believed that volume should increase in the direction of the price. If the
prevailing trend is up, volume should be heavier on the up days and lighter on the the
down days. If the trend was down, volume should be heavier on the down days, with
lighter volume on the up days. This makes sense
because in an uptrend there should be more buyers
than sellers, and in a downtrend there should be
more sellers than buyers. If volume should start to
diminish, it could be a warning that the trend could
be losing steam and that a consolidation or perhaps a
reversal could be ahead. If the trend was up, and
now we're seeing more volume on dips than on
rallies, it should be an alert that buying pressure is
waning and sellers are becoming more aggressive.
The reverse would be true in a downtrend. If volume
starts to shrink on the sell-offs and picks up on the rallies, once again, it could be a
sign that the trend is in trouble, and buyers are starting to assert themselves. When
volume moves in the opposite direction of the price, this is called divergence.

One of the reasons why volume has a tendency to diminish during periods of
indecision is for just that reason. During periods of sideways movement, often traders
will avoid a market, preferring to commit their funds once a clear-cut breakout is
seen. However, while it's typical for volume to diminish during these times, volume
can give clues as to possible future direction by measuring the level of conviction of
the buyers and the sellers. Seeing if there's heavier volume on the up days or on the
down days could be useful in getting positioned during a sideways move or a
formation of a pattern. The idea being that if there's more volume on the up days
than the down days, the buyers are probably the more aggressive and the market
should more than likely breakout to the upside. The reverse being true if the volume
is heavier on the down days, with the market likely to breakout to the downside.

So while it seems as if chart patterns, volume and technical analysis in general all have
some forecasting abilities, none are foolproof. Used together, they can be quite helpful
in your trading and investing, but should be looked at more as helpful hints as to a
markets bias, more than anything else.

Futures and options trading carries significant risk and you can lose some, all or even more
than your investment.

Stock trading involves high risks and you can lose a significant amount of money.

The information contained here was gathered from sources deemed reliable, however, no
claim is made as to its accuracy or content. This does not contain specific recommendations
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7/13/2020 Volume

to buy or sell at particular prices or times, nor should any of the examples presented be
deemed as such. There is a risk of loss in trading futures and futures options and stocks and
stocks options and you should carefully consider your financial position before making any
trades. The reference to statistical probabilities does not pertain to profitability, but rather
to the direction of the market. The size and the duration of the markets move, as well as
entry and exit prices ultimately determines success or failure in a trade and is in no way
represented in these statistics. This is not, nor is it intended to be, a complete study of chart
patterns or technical analysis and should not be deemed as such.

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