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Volume
Description
Volume is the number of units (i.e., shares or contracts) traded
during a specific time period. The analysis of volume is a basic yet
very important element of technical analysis. Volume helps measure
the intensity of price movement.
Often, the y-axis scale for volume is displayed in multiples of 10s
or 100s rather than the actual number (i.e., 500 = 500,000 shares).
If there is a scaling multiple, it will be displayed at the bottom
of the y-axis scale. Volume is normally displayed in a histogram
line style below the prices.
Some real-time data vendors do not provide volume with every tick.
If this is the case, MetaStock Pro will automatically assign a
volume value of "1" for every incoming tick. This allows you to at
least see the number of "ticks" that have come in during a specified
period. In other words, if the volume on a 1-minute bar is 22, then
you know that 22 trades came in during that minute.
If your real-time data vendor does not supply trade volume with
updates, and a symbol is added during a trading session, the first
tick will contain the total volume up to that point in the trading
session. MetaStock Pro will then calculate the trade volume for all
subsequent ticks.
Interpretation
Volume is important to many techniques and systems used in
technical analysis. In brief, volume provides clues to the intensity
level of a given price move.
Generally speaking, volume tends to be a leading indicator of price.
Volume usually drops off before prices peak, and it usually picks up
before prices rise from a market bottom.
Low volume levels are characteristic of the indecision that
typically accompanies consolidation periods (i.e., periods where
prices move sideways in a narrow range). Low volume is often found
at market bottoms.
High volume levels are characteristic of market tops and the
beginning of new trends (i.e., when prices break out of a trading
range). Just prior to market bottoms, volume will often increase on
panic driven selling.
Volume also helps 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. After a
market top, it is common to have a sharp down day on very heavy
volume. A healthy downtrend usually has higher volume on the
downward legs of the trend and lower volume on the upward,
corrective legs.
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