Why Volume?

The technical analysis of volume is a basic yet very important element of market timing strategy. Volume provides clues as to the intensity of a given price move.

Volume can help determine the health of an existing trend. A healthy up-trend should have higher volume on the upward legs of the trend, and lower volume on the downward (corrective) legs. A healthy downtrend usually has higher volume on the downward legs of the trend and lower volume on the upward (corrective) legs.

Volume intraday helps see where a stock is being repeatedly bought as it dips. Likewise, towards the end of a rally, an expanded range bar together with a spike in volume often signals that the move is at an end, at least short-term. If you weren't aware of it before, I hope you're starting to see why volume is a trader's best friend.

A moving average of volume should also be taken into consideration in developing your Market Timing system. A Moving Average is an indicator that shows the average value of a security's price over a period of time. This is important for technical analysis because when the current volume rises above a long term volume moving average, this is potentially a signal that there is increased market activity that will be affecting the price. Thus, it is important to provide this indicator as an input.

Additionally, unlike many indicators, volume is applicable to every timeframe. How can this be? Simple. Volume is simply a measure of sentiment, of human nature. And fortunately for us, human nature is the one ever-present constant of the stock market. Never forget that fact. Once you have your own emotions under control as a trader, knowledge of this profound fact will guide you ever after as reliably as the Northern Star guides a lone sailor across a vast sea. Now you should really be starting to see why volume is a trader's best friend and .

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