Volume

When we discussed market action in the first module, price was only one of the factors. The second factor in most trading is the volume, and it is important for technical analysis that we have a way of examining that. If you remember, Dow was interested in volume as a confirmation that an apparent trend was valid. It makes sense that if hardly anyone is buying, the price might be distorted, but if there is a lot of buying and selling going on, the price is soundly established.

Volume is the total amount of trading that has gone on during the day, whether it is the number of stocks that were bought and sold, or the number of futures contracts traded. It is usually shown on a chart by a line of vertical bars, shown separately at the bottom. Here’s the last chart with the volume added.

Each vertical volume bar lines up with the candlestick for one day, and shows the trading for the day. The height of the volume bar shows the amount of volume on that trading day. The scale on the left goes up to 10 (millions), and the highest bar is on 18th September, which almost reached that number. The area of lowest volume, apart from one day, appears in December and if you look at the price you can see that there was not much direction to it, indicative of a weakness in interest among buyers and sellers. This chart is plotted with black bars when the volume has increased since the previous day, and red bars when it has gone down, and you can set this in the software.

There are other ways in which the variation in volume can be brought into the chart, and we will get to those later.

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