Volume analysis

Volume is solely the quantity of shares or contracts that trade over a given amount of your time, sometimes daily. the upper the quantity, the additional active the protection. to see the movement of the quantity (up or down), chartists investigate the quantity bars which will sometimes be found at rock bottom of any chart. Volume bars illustrate what percentage shares have listed per amount and show trends within the same approach that costs do.

Volume is a vital facet of technical analysis as a result of it’s accustomed make sure trends and chart patterns. Any value movement up or down with comparatively high volume is seen as a stronger, additional relevant move than the same move with weak volume. Therefore, if you’re observing an outsize value movement, you ought to conjointly examine the quantity to ascertain whether or not it tells constant story.

Say, as an example, that a stock jumps five-hitter in one mercantilism day when being in an exceedingly long downtrend. is that this a signal of a trend reversal? this is often wherever volume helps traders. If volume is high throughout the day relative to the common daily volume, it’s a signal that the reversal is maybe for real. On the opposite hand, if the quantity is below average, there might not be enough conviction to support a real trend reversal.

Volume ought to move with the trend. If costs area unit acquiring an upward trend, volume ought to increase (and vice versa). If the previous relationship between volume and value movements starts to deteriorate, it’s sometimes a signal of weakness within the trend. as an example, if the stock is in an uptrend however the up mercantilism days area unit marked with lower volume, it’s a signal that the trend is commencing to lose its legs and will before long finish.

Another vital plan in technical analysis is that value is preceded by volume. If volume is commencing to decrease in an uptrend, it’s sometimes a signal that the upward run is near to finish.