Volume & Open Interest

Volume is what drives the market. This indicates if there is increasing demand for the supply in the market.

Volume and open interest is what drives the market. Gann felt that volume and open interest was very important to
indicate market direction. This chapter will explain how to use these tools for indications of direction of trend.

Volume is the number of contracts that traded during the day. If volume does not increase or decrease then
speculators feel the market will remain steady. Volume usually remains steady in consolidation areas, usually at low
price levels.

If price moves out of a consolidation area with increased volume, then there is a good chance that the price move will
be the beginning of a good move.

If prices start to fall out of a consolidation area with increase volume it is significant.

If when price falls the volume starts to fall, then the market may be ready for a turn back up.

If the volume increases when price falls back to a base, it means that traders are buying it as they think it is a bargain.
If volume increase when prices run up to a resistance area, it means traders are unloading it thinking price is too high.

Volume also increases when the market runs into stops. The floor traders often times run the market into these areas
when they can. If the market has run up into stops and does not continue, then these is a good chance prices will fall
back as it just got the weak shorts who had to put in close stops.

For a big trend to continue, the volume must continue to rise. Watch the volume closely as it will give you the clue to
the market direction. Without increasing volume, prices will not continue to increase. After a long advance in prices
many times the volume increases dramatically because small speculators are jumping into the market near the top
thinking that prices will continue up forever. After a long decline in the market many times volume will dramatically
increase because the public who have been long the market and loosing lots of money are finally giving up and
throwing in the towel.

When prices break out of a consolidation area and make their first advance and then decline, if the volume runs up
and then declines it is bullish.

When prices break down out of a consolidation area and makes their first decline and then makes the first correction
back up,if it decline is on heavy volume and the retracement back up is on declining volume then this is a good
indication for a good move down. Open interest is when there is a new buyer of a contract and a new seller.

When prices increase with rising volume and open interest increases this is a further indication that the market will
rise. Having all three rise is very bullish.

If prices are rising, with rising volume and decreasing open interest, then it is a good indication that there is short
covering in the market. If prices are stable and open interest is rising there is a good indication that positions are being
accumulated.

If prices are stable and open interest is stable, there is no indication of any change of trend. Look for the market to
break out of a consolidation range with rising open interest and volume to change this stable condition of the market.

If prices are stable and open interest is falling then there is a good indication that the market is loosing interest and
the public is going elsewhere.