Like this one for example: I don't really understand how a sharp drop in volume leads to big advancements in price. And similarly if there is a sharp increase in volume, there are big drops in the price.
prices find liquidity. assume you're making a market 10/12 ,100 up. someone lifts your offer. you put in a new offer 100@24. Someone buys 1 share at 24 . price doubled on nothing
Fast moves are all low volume, its the absences of players. If some news comes out, its great news, everyone wants to buy only weak fools want to sell, then the price will move up, to a level where people want to sell, to take there profits. No volume required at all for the move, only the weak sellers stop it jumping 30% for no volume.
Greater amount of buy orders at the market and no limit orders on ask side makes gaps on tick charts, it might look on one bar there are fills but one bar can have an open and close of two filling orders and nada in between. Certainly not a market you want to be in as bid/ask will be wide and getting stopped out can cost thousands as one of many mistakes I learned to trade. Trading lessons are usually expensive.
Surely, if price moves fast and sharp on both low and high volume, isn't that a clue that volume may not be the determining factor after all? In truth, it's about imbalances in the order book at given price levels, no?
There are two dimensions. Market orders (Order Flow) & Limit orders (Liquidity). Fluctuations are about these two dimensions. You have Buyers (Buy Market Orders & Asks) You have Sellers (Sell Market Orders & Bids) It's a differential between the four. Sometimes the volume is actually bearish. But you'll see the price goes up. Because of the liquidity. Which is weak Bids but very strong Asks. It's not that infrequent. Especially on the currency futures market ! Why ? Don't know. I see it this way : Buy Market Orders / Bids - Sell Market Orders / Asks Every term is positive. At 0 ... Equilibrium. Volume alone tells nothing about fluctuations. But it can tells about timing. Price levels. People get excited and it's contagious. For exemple, lots of retracements after a spike, Are drived by a liquidity hole. You observe "no" volume. But it's actually the liquidity that isn't supoorting the price. Like if you were running faster than the guy who has the water. So volatility isn't just about volume. At news events, the liquidity dries up. You see everyone pulling out their limits. That is why news events are volatile ones. The stronger the volume and the weakest it's adverse liquidity, Aka (Resistance) then the stronger the move.
That sort of move implies that buying mopped up the remaining supply, therefore, sellers backed away and said f*ck it.
Hypothetical example: Let's say we have simplified market where we have 1000 bears and 1000 bulls traded every day and each bull/bear may trade 1 share per day. We will have 700-1000 shares traded every day in average. When we have more bears engaged in trading price is pushed down and when we have more bulls price is pushed up. Now, let's imagine that at some point of time 500 bears turned into Bulls. Now we have 1500 bulls and 500 bears and daily volume cannot go above 500 shares per day because each trader has capacity to buy/sell only 1 share. We have drop in volume, we have dominance of the bulls and luck of the Bears and price go strongly up - Law of supply/demand. This is very simplified, but it should give you idea how price can go strongly up on declining volume. Nice article about it: http://www.marketvolume.com/advance_decline/overbought_oversold.asp
This is really important to understand because a lot of people assume that a market rising on low volume is bearish. They don't understand that it could be a lack of supply instead of weak buying.