One of the absolutely most useful indicators is volume.
For stocks, volume shows the number of shares being traded.
So if stock ABC had 20 shares purchased and 10 shares sold on a particular day, the volume for that day would be 30.
In futures and options, the come represents the number of contracts being exchanged.
Adding volume to a chart and checking the levels and behaviour will provide a greater understanding of what price is actually doing.
During a breakout from consolidation, having heavy volume provides more conviction that price may now move into a trend. A low volume breakout may suggest a fake breakout.
Volume can be used in a variety of ways:
- Trend confirmation
- Reversal confirmation
- Fake breakout
- Bullish sign
- Bearish sign
- Pattern confirmation
Think of volume as the wind beneath a stocks wings. A stock with no volume will have little reason to trend so if you are in a trade, you want good volume to continue the trend. Always pay attention to those volume levels, before the trade and during the trade.
If you have not been previously used volume in your decision making, nows the time to make it an integral part of your trading analysis.
Lets go trade!