orangetrader
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Dear all, I would welcome any thoughts/debate regarding volume within the following context.
My understanding of volume is that increasing volumes during an uptrend is bullish whilst falling volumes put rallies into question. Likewise for a declining price but the volume isn’t as important as prices will also fall under their own weight. The way that I tend to use volume is in conjunction with candlesticks and candle patterns – giving more weight to a pattern if it is accompanied by a higher than average volume.
Is it that simple or is there much more to it?
For example I’ve started looking at volume spread analysis/VSA. One of the VSA lessons is that not all volume is equal. For example volume combined with price movement & high/low spread can point towards accumulation / distribution. I have to say that I am a little sceptical as just because there is no evidence of smart money supporting a move at a given point, that doesn’t mean a) it isn’t there or b) it won’t be there tomorrow/next week. That said I think there are times when the price moves lower on high volume and then instead of going even lower in the next session, it goes higher which could point towards accumulation/support by professional-money. But then that still depends on the context of the move as it may be retail buyers buying because they perceive the price to be good value as it is lower than it was a week/month or year ago.
I guess part of this depends on how and at what time volume plays a part in the decision making process. I currently look at price movements and patterns first and then look at volume for confirmation or vice versa. The trouble is I suspect that volume should be part of the price pattern /trend analysis rather than identifying patterns and then using volume to confirm or not.
Am I reading too deeply into this? Or is it simply the case that sometimes volume is a helpful indicator and sometimes it isn’t and that it depends on the context e.g. if it looks like the top of a rally, volume is a critical indicator where as if it’s range-bound you shouldn’t pay too much attention to it?
The other part that I struggle with is interpreting the overall volume trend – the volume bars can look quite similar over long periods. Does anybody else use moving averages for volume, on balance volume, money flow index, price on volume indicators?
My understanding of volume is that increasing volumes during an uptrend is bullish whilst falling volumes put rallies into question. Likewise for a declining price but the volume isn’t as important as prices will also fall under their own weight. The way that I tend to use volume is in conjunction with candlesticks and candle patterns – giving more weight to a pattern if it is accompanied by a higher than average volume.
Is it that simple or is there much more to it?
For example I’ve started looking at volume spread analysis/VSA. One of the VSA lessons is that not all volume is equal. For example volume combined with price movement & high/low spread can point towards accumulation / distribution. I have to say that I am a little sceptical as just because there is no evidence of smart money supporting a move at a given point, that doesn’t mean a) it isn’t there or b) it won’t be there tomorrow/next week. That said I think there are times when the price moves lower on high volume and then instead of going even lower in the next session, it goes higher which could point towards accumulation/support by professional-money. But then that still depends on the context of the move as it may be retail buyers buying because they perceive the price to be good value as it is lower than it was a week/month or year ago.
I guess part of this depends on how and at what time volume plays a part in the decision making process. I currently look at price movements and patterns first and then look at volume for confirmation or vice versa. The trouble is I suspect that volume should be part of the price pattern /trend analysis rather than identifying patterns and then using volume to confirm or not.
Am I reading too deeply into this? Or is it simply the case that sometimes volume is a helpful indicator and sometimes it isn’t and that it depends on the context e.g. if it looks like the top of a rally, volume is a critical indicator where as if it’s range-bound you shouldn’t pay too much attention to it?
The other part that I struggle with is interpreting the overall volume trend – the volume bars can look quite similar over long periods. Does anybody else use moving averages for volume, on balance volume, money flow index, price on volume indicators?