Volume

Volume can be a barometer of future activity and direction. Volume measures the number of contracts that exchanged hands during the trading session. It measures market activity.

Study Type: Stand-alone

Description

Volume is tracked on an individual delivery month and total symbol basis. For example, the study on the daily November Soybean chart only displays the volume for the November contract. The values for the volume are transmitted from the exchanges. However, the actual volume figures are always one day behind price information. You will not know Monday's volume until Tuesday at approximately noon (for U.S. markets - central time). That is due to the exchanges and their reporting requirements. 

Volume does not have straight and simple trading rules. Volume is a measurement of the ebb and flow of the underlying market. Are new buyers/sellers entering the market? Are traders liquidating their positions? Does Volume confirm the trend or suggest a change in trend? The Volume data creates a lot of questions but not many simple answers to those questions.

The histogram (vertical lines) represent the volume on a daily basis. Traditionally, traders have used these rules for volume analysis:

• If prices are up and volume is rising, the market is strong.
• If prices are up and volume is declining, the market is weak.
• If prices are down and volume is rising, the market is weak.
• If prices are down and volume is declining, the market is strong.

Additionally, the bars are color-coded to indicate market activity for the day:

• An up day (where the price is greater than the previous price) will show a green bar.
• A down day (where the price is less than the previous price) will show a red bar.
• When the price is unchanged compared to the previous price, Volume will show as a blue bar.

Other rules you might find worthwhile:

• In a bull market, volume has a tendency to increase on rallies and to decrease on reactions.
• In a bear market, volume has a tendency to increase on declines and decrease on rallies.
• Trading volume usually increases dramatically at tops and bottoms in the price chart.

At first, it appears these trading rules are in conflict. Actually, they imply very similar market conditions. Volume information is often a quite useful indicator, especially when the trading volume deviates from expected patterns. This includes contra-seasonal moves, volume patterns versus chart patterns, and divergence.

You can use volume to determine market action. You must watch for divergence between price direction and volume. For instance, if the market makes new highs while volume falls short of the previous high, it implies the market is getting weaker. In short, fewer buyers are willing to enter the market at current price levels.

Parameters

• None