We often hear how traders use volume to confirm "strength" of the market e.g. down on increasing volume is good as it signals buyer support. Question. In todays environment of black box trading, trades held for seconds and minutes at a time (day trading churn), is volume a false indicator? Looking back last Friday yeah the NYSE volume was up - but so what. If black boxes were simply churning (buy/sell/buy/sell) throughout the day as the market whipsawed what use is volume apart from a liquidity indicator.
Though volume is held in high esteem by many, I abandoned its use years ago. There are many market highs and lows on high or light volume such that there is little, if any, correlation to price behavior. I've come to believe that trading stock indices is best done without volume considerations.
Indeed I trust volume less than before because it simply seems that you can deduct anything from it... Regarding the intraday trades, you are right, days like this past week are obviously highly attractive for daytrading. Therefore a part of the volume concerns positions that have been held for a day and won't have been held if the market wasn't so volatile.
First of all, I think your only painting part of the picture. I too often hear the importance of volume to determine the strength or weakness of the market. However, I also hear these same traders using other variables to confirm what they see in volume. Therefore, rarely do I hear a trader say they only use volume with price and nothing else. In fact, there's a few traders here at ET that openly said they only use volume. Yet, once you either see their trading workstation or see what else they talk about at ET or other forums... You'll quickly determine they are using other stuff with their volume analysis. Is volume a false indicator? It should be if your using it incorrectly or without any confirmation. With that said, I myself prefer volatility analysis instead of volume analysis. Mark (a.k.a. NihabaAshi) Japanese Candlestick term
I think down on increasing volume may be a sign of panic, nothing good about it. With volume you never know what portion of it represents actual buying/selling and what portion of it represents market maker or specialist round trips to create the impression there is a lot going on until someone falls for it. Ron
Because so much trading is index-related, the index's trading volume has less predictive value. With individual stocks and commodities, their volume peaks and trends are more relevant.
...e.g. down on increasing volume is good as it signals buyer support. What is good what is bad? I don't follow your reasoning here. And how down-on very-large volume could signal buyer support is beyond my understanding. It would signal, however, strong selling pressure, which might lead, down the road, to buyer support. That's the nature of markets, they go up and they go down, and they go up, and they go down. I always take volume into account, as well as a number of other factors, in my trading. Perhaps there is confusion because volume, just like price, contains noise. The relative noise level differs with time frame. The longer the time frame the lower the relative noise. My own view is that if you ignore volume you are throwing out one of the most important clues to market action.
From the days past in television land........ Captain Video and his Video Rangers..........A parody of a couple ET members Space cadet 1 this is space cadet 2.......i have a SPOT REPORT.....OVER Space cadet 2 this is space cadet 1.........SEND IT.....over. Space cadet 1 this is space cadet 2..........report is as follows, FTT spotted at grid 30954723 and has stalled in place, sct tails converge as we speak, STR is tailing off to the north, GPp is standing still and looks confused ....OVER Space cadet 2 this is space cadet 1........roger your spot report ...OVER Space cadet 1 this is space cadet 2 ........Since my position is your tail end charlie and scouting your rear to avoid a rear attack this spot report is actually meaningless because the event is historic as enemy moves further to the rear .....OVER Space cadet 2 this is space cadet 1..........report is useless but the flock of troops under my command need a leader since they are followers and can not understand what is in front of their gunsights ...OVER Space cadet 1 this is space cadet 2.....ROGER THAT ...OUT MORAL............Following volume is useless, it is always late, price to the trained eye TELLS ALL
Volume on the NYSE is in question. If you are familiar with the progress the press has made over the years, you can remember how long it took the last financial paper relative to the first to get with volume on the NYSE. I would be going OT to make the suggestions that you need to consider before you can get to considering the NYSE volume. Suffice to say, at this point you are drwaing the wrong conclusions from what ever your thought basis is. So is mostly everyone else, unfortunately. It's a shame.