Stocks & Commodities V. 23:6 (30-37): Spike Up The Volume by Giorgos Siligardos, Ph.D.
A long spike appearing in the volume histogram usually catches your attention. But how do these spikes in volume really affect indicators and prices?
Volume can be considered to be the fuel of the markets. When the daily trading volume of a security is extremely high compared to its average daily values, that means itís attracting a large number of buyers or
sellers. Oftentimes, this huge rush leads traders awry.
In his article ďA Tale Of Two Indicators,Ē Andrew
Tomlinson gave an interesting example of two volume
indicators that diverge, giving opposite signals.
The daily volume spike along with a gapping down
hammer created these signals, and Tomlinson noted
that this divergence was due to the nature of the
formulas of these volume indicators. Here I will
discuss the concept of volume and show that volume
spikes actually do not provide signals that indicate
which way prices will go, but rather provide instantaneous alert signals.