Volume in Technical Analysis. written by: bettymom


Traditionally, not a lot of traders are paying attention to the volume based technical analysis and volume calculator. Historically, the majority of indicators were developed to analyze price movements. There are several reasons why fifty years ago retail and professional traders’ main focus wad price analysis only. density mass volume 

First reason is the volume gaps. Half of century ago, the stocks were not a trade as actively as they are traded today. Therefore, intraday volume data on many stocks had gaps – when volume equal zero. When you apply technical analysis to the price you may see the nice smooth picture, yet, when similar technical indicators are applied to the volume that has gaps, you will have a disordered picture which makes tough to pull out something logical from it.

Second reason is the low volume. When it comes to the low volume stock, as a rule, it is a common to see a big number of volume spikes. One trading period you may have volume like 10K, another trading period it could be 50K which is 400% rise. The same as in the case with volume gaps, such volatility in volume makes it difficult for analysis.

Fifty years ago the main technical analysis was done on the daily data and indexes, and exchange was only the trading vehicle that had more or less stable volume flow that could be analyzed. However, at that time nobody provided volume for indexes and exchanges, and this is the third reason why volume analysis was not very popular at that time.

By its nature volume allows to track and measure the trading activity and reveal changes in this activity. The corrects interpretation of volume analysis will allows seeing a moments of sentiments changes – when investors stopped injecting money into stock and started to pull them out or when they do not sell anymore in panic and started to buy.

Nowadays there are no problems with volume data. Trading activity of stocks is much higher than fifty years ago. Volume data for indexes (S&P 500, NYSE, DJI, Nasdaq 100, etc.) became available. Due to the average high trading volume, there is much less stock that has volume gaps and spikes. All of this has made volume analysis available to the wide range of investors.

Professional and institutional trades already started to use volume based technical analysis injunction with price based technical indicators a decade ago. More and more trading systems base their signals on volume indicators. NYSE volume was the first volume from the group of indexes and exchanges that professional analysts started to pay attention to. Now, the volume of S&P 500, Nasdaq 100, Nasdaq Composite indexes has become equally popular. Volume calculator helps a lot in finding out of a different shape.

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