So far I like to observe volume spikes as confirmations or exhaustions of trends, but I'm starting to wonder what the logic is behind it, given that there is so much money or holdings on the sidelines. If institutions witness significant movement yet don't engage, isn't that as much of a confirming signal if there's low-volume? They essentially are fine or don't feel the need to trade against a low-volume trend.
I think those volume spikes at reversal candles are someone defending a certain price level from getting penetrated. That's how I see it at least.
Or possibly creating/replicating a position in the options market ? It is because of these inconsistancies/variables that I loose my confidence in volume as a leading indicator as many adhere to. @Sprout ..maybe you can comment. I guess my problem with volume is how do you establish the true base line ? how do deep ITM options (as a stock substitute) factor in ? Or institutional indifference (as mentioned above ) ? Thanks
I don't mean to be difficult but... 1) A confirming signal of what? You've mentioned low-volume trend, so you already know markets can trend higher, lower, or be range-bound, regardless of increasing volume or decreasing volume. What signal is confirmed by low volume? 2) What would be cause (for institutions) to "feel fine"? Why would there be a "need" (for institutions) to trade against a low-volume trend? A trend can occur with decreasing volume, right? Maybe it's as simple as an unattractive bid and-or ask price. I think a "better" question might be, why aren't they using the reduced volatility to continue accumulation or distribution, whichever jibes with the trend they are participating with in the first place. As mentioned, not trying to be difficult, I just don't quite understand what you trying to say, ask, or point out.
There are many ways to trade...some people look at volume and level 2 quotes. -- I don't. I just look at the chart dot line, with my assuming logical reasoning behind it the way it trades and unfolds. -- it works for me. Depending on what you trade, and how, I think it's important and vital to develop your own understanding and feel for it. Don't be too obsessed with the existing main indicators that other people may or may not use.
Contrary to what most people will tell you, volume isn’t a very useful indicator. Volume always soars when the market is falling. Volume always goes down when the market is bouncing https://bullmarkets.co/dont-use-volume-for-trading/
Well, to be specifically more vague, a confirming signal of, well, anything! I'm guessing people use volume to confirm everything from trends to rangebound consolidation, my question is what the underlying thesis behind the use of volume as confirmation of anything is. As far as institutions go, I'm just bringing them in because most of the times I've seen people mention high or low volume, they mention this as a measurement of institutional participation. And I should've watched my phrasing (I thought it may be misleading), I don't necessarily mean against the trend, but using the trend in general. If there is a low-volume trend, then it means there is enough volume on the sidelines that is observing the movement, and for the most part, not engaging with it. This seems to me a not insignificant position. Therefore, it does not make sense to me why volume would be a significant indicator in general. That's essentially my argument.
These are similar to my considerations, so I want to toss out some examples and see what your response would be: The article mentions crashes and volume, but what about spikes upwards? Significant volume near the top of trends *supposedly* predict a reversal. The theory is that it is at this point where many of the original buyers cash profits, and where shorts start to pile on. What do you think?
Volume is what starts price movement & ends it, it is the wind in the sail. Here is an example of volume pointing to a blow off top - a huge increase in volume seen on weekly and 2hr chart. Give it some time and eventually using volume will make sense.
Contrary to what most people will tell you the markets never always do ... X. Volume needs to be compared to a prior bar/period. Also the Up/Down ratio helps. As well as all the rest of the goodies time/price/pattern. Anyone who says it is worthless is really saying they can't find any worth in it.