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Volume

Volume as an indicator is a huge subject. Many other indicators are built around volume and use volume in their calculations. We suggest a simple approach that uses volume on its own.

For trends and pullbacks to end there generally needs to be a transfer of belief (from bearish to bullish or bullish to bearish), whether it’s on a large time scale or not. This is what causes the swing points in trends, and really drives the early stages of trends themselves.

A transfer of belief thus will usually require more volume. The reason is that at the end of a trend or pullback (smaller trend), one side of the market outweighs the other. In other words, there are a lot more longs than shorts or shorts than longs. The only way for the trend to end is for that imbalance to correct itself, or for the heavily weighted side to unload its positions.

Once this occurs a new trend is able to begin. On a chart you will see this with above average volume, which at times will even look like a spike in both price and volume.

 

 

Move on to Step 4 - Module 2 > Trading System Builder Tool Kit: Trading Rules > Trigger: Price Bar Patterns

 

  

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