Here’s a new twist on volume analysis, with a volume-based
indicator for identifying meaningful trends.
Technicians recognize the importance
of volume analysis and its
application to price movement as
requisite to any serious examination
of stocks and market averages.
While price is the most important
dimension of market
analysis, how prices move is a
function of the intensity of volume
that produced it. The true
measure of durability behind price movement is most readily
available through volume data. Since volume is a proxy for
money flow, volume analysis can expose the internal dynamics
— the strengths and weaknesses — of price action.
Frequently, volume divergences exist beneath the cover of
price action and provide the only evidence of an impending
reversal. Moreover, since volume is thought to precede price,
its usefulness as a leading indicator of price strength or
weakness can result in a more accurate assessment of price
action. Finally, by converting volume statistics into an effective
timing model, technicians would be better able to gauge
the validity of a given price movement.