This is for swing/position trading: Like others, I've read in TA books how volume is an important indicator of 'fuel' for moves up or breakouts out of ranges. Some books even go as far as saying that if a rally doesn't have volume, it is suspect and should be avoided, if not shorted. But over the years, I've seen so many examples of stocks levitating with a placid volume line underneath that I'm really beginning to wonder if volume is all that important. For brevity's sake I offer only two examples here: GMP (Cdn - TSX) TRID (NASDAQ) I've sidestepped many stocks like these because they 'just don't have volume'. Are they the exception rather than the rule? Or am I onto something here? I would really like to know what others think about this in general as well as those two examples specifically.
I don't do individual stocks... just indices and sectors. About 6 years ago I dropped volume considerations 100%..... nothing about it is reliable.
From a money making viewpoint volume is a key variable. Volume shows up as important only if you are trading a method that has a high money velocity (slope) on your ever increasing and steepening equity curve. It is a case of getting into the ball park to be able to play. Those who do not make it into the ball park but just do the picnic thing will not know much about the role of volume in making money. Making money is like looking at the low pressure formation of a hurricane rom a satellite. First you get to see the whole picture and then you zoom in and play where the action always is. The closer you get to the energy of the market that centers on NOW, the more volume plays a role. It is better that price as a variable for making money. I conclude this as a result of determining that volume best reflects the collective sway of the active individuals in the marketplace. There are two groups of players opposing each other and the smaller group is always in control. The size of the larger group is never known or transimtted to anyone as volume data only the size of the smaller group is ever transmitted. The ID of the smaller group is not always listed either. There is a set of measures associated with volume that tend to corroborate the signals volume is giving. Pace and volatility (ignore the current volatility thread) are the two most important. When volume is used as an indicator of price, it is a leading indicator.
Volume related analysis usually focus around confirmation of trend and confirmation of breakouts/breakdowns. Out of all the well known volume techniques I have seen, the one used by Time Ord is most consistent. I am not talking about his new volume chart on stocks, which I have not backtested. I am talking about his market turning point signals. You can visit his site to learn more, http://www.ord-oracle.com/ I am not a customer of his newsletter nor in any business relationship with Tim Ord, just that early in my career, I have read his material and after testing his concepts, it is really what he claims.
Very important, I believe almost 99% of the moves can be explained through volume, price tests, volume confirms. if volume doesn't confirm, price withdrawals if volume confirmes, price continues. etc..
Outdated. Obsolete. Virtually none of this is true. Volume considerations will cost you more in lost profits than it will save you in losses avoided.
"There is a set of measures associated with volume that tend to corroborate the signals volume is giving. Pace and volatility (ignore the current volatility thread) are the two most important." Would you mind elaborating on "pace" a little bit, or posting an example? It's a term I haven't encountered . . . ever, I think. Yet just off the bat, in a kind of intuitive sense, it seems to make sense. Are you talking about ROC? Perhaps you could point me to some urls/books where I could learn more.
My cutoff point is an average daily volume of 100,000 shares. TRID qualifies, GMP.TO doesn't. In general: yes, volume matters.