How to find the strength of the Trend - Volume

VOLUME

As we have noted, when the analyst sees a three-point formation A-B-C as in Figure 5, he will draw a tentative trendline. This is not yet a signal for action; he must look for confirmation. As time goes on, his chart may be strewn with tentative lines that have been discarded. But he will also find trends that follow through. One of his most important guides will be the volume, or number of shares traded each day. The volume is a measure of the intensity of buying and selling pressure—the conviction behind a move. Obviously, if a stock that is seldom traded jumps 5 points on a single trade of 100 shares, the price increase only means that one individual, for reasons best known to himself, wanted 100 shares, and there were none to be had immediately except at a level 5 points "above the market,” where some other individual had told his broker he would be willing to sell.

By the same token, the greater the volume, the greater the significance of a price movement, in general. During a normal uptrend, volume increases when prices are rising from the trendline, and volume subsides when prices are falling back to the trendline. Conversely, in a downtrend, the volume is usually greater when prices are falling than when they are rallying.