Importance of Volume in Trading

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Importance of Volume in Trading​

What is Volume?

Volume is the number of shares or contracts traded during a given time frame. The time frame is usually one day, but can also be a week.

The analysis of volume is basic and essential in technical analysis.

Volume provides evidence of intensity with a given price move.

As volume often leads price, it is a valuable indicator, especially for price peaks.

The analysis of volume is basic and essential in technical analysis.
Volume provides evidence of intensity with a given price move.
As volume often leads price, it is a valuable indicator, especially for price peaks.

Low volume levels are characteristic of the indecisive expectations that typically occur during consolidation periods (i.e., periods where prices move sideways in a trading range). Low volume also often occurs during the indecisive period during market bottoms.

High volume levels are characteristic of market tops when there is a strong consensus that prices will move higher. High volume levels are also very common at the beginning of new trends (i.e., when prices break out of a trading range). Just before market bottoms, volume will often increase due to panic-driven selling.

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.
 
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