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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. |
