we're going to talk about volume and just give you a brief little overview of a couple of very simple volume techniques and if you're interested in learning more we've got more that we can show you in the future right now what we're looking at here is Google daily chart and price up here obviously and then you've got your basic volume histogram here and then this is obv unbalanced volume now there are three different things price is what it is volume is what it is - volume is not an indicator in other words now things like unbalanced vol stochastics MACD RSI Bollinger Bands all these kind of things they're indicators they are derivatives of normally price but some of them of price and volume or just volume but the great thing about volume is it is what it is it doesn't indicate anything it's not pointing to something else in other words it's just telling you exactly how much volume in this case how many shares were traded during each bar during that time period so very important to understand how to use volume so for example as we bring up our crosshairs and let's just look at the volume histogram here you can see that as I look at the horizontal line the volume is pretty much consistent we've got a little ups and downs so here it goes up a little bit as the price retraces the volume histogram retraces down a little bit as well volume picks up here as we push back up out of the retrace and then as we come back and we retrace down volume retraces back down a little bit - and as we move back up volume starts to go up a little bit and that's just your basic basic volume pattern so the basic volume pattern is quite simple and it's just this as price goes up down here with volume you like to see volume increasing and then this is in an uptrend so this is in the direction of the trend this price retraces in the trend we like to see that happen on less volumes so in other words there's a lot of buying activity in the direction of the trend and less interest as the market retraces against the trend as the market goes back up like to see more participation among the market participants so that's the general idea now that's nice and that's kind of your textbook pattern but when you actually look at the volume bars you'll see that they vary a little bit and so what we're looking for is not necessarily bar by bar or for exact correlation but general correlation now you'll even notice for example sometimes like the market is going up here during this period but volume actually declining a bit and here the overall pattern is actually up and you're doing you've got two different periods you got going up and then coming down so what comes down kind of hard and then it's price goes back up what happens volume comes down again hmm the heck is going on with that and then as it comes down will starts to come back up and then as it goes back up well the overall pattern is it goes up but if you look at it bar by bar we get a couple of up bars that we get some down bars while price is still going up and then it goes up again then price keeps going up but then volume starts coming back down so just reading the pure volume histogram is tricky and is not really eat that easy to do it doesn't have a one-to-one correlation with price bars and really the same thing is true of reading price a lot of people talk about I just need price I don't need indicators but the reading price again is very challenging and so this is where indicators come in and so today we're looking at a volume indicator unbalanced volume and it kind of does several things but one of the things that does it kind of smoothes out the patterns so for example as we get this big move down here this big retrace pretty steep retrace and volume actually starts to pick up a little bit here then we look at unbalanced volume in really it's just pretty much within the same range we're not making lower lows in other words and then his volume picks up whereas price picks up here then volume on balance volume really picks up dramatically and as we get our retrace yes we get a retrace on volume on balance volume and then again as price comes up on balance point it's just easier to see this line dramatically going up than it is to see this and even as price starts coming down here while this market is consolidating you know this remains here it just follows to closer to the high then the actual volume histogram does okay get a little bit of a retrace just as we do on price comes back up and again making a nice higher high is just following the general trend and that's what you want going up up up higher highs higher lows in general now here we get a real change actually let's go back here a little bit before this because we just miss something very important to point out look at this big move here that's a nice a nice move very nice move on Google that's almost a hundred point move there but if you look at your volume histogram volume kind of low I mean it's not really increasing back to our basic principle you like to see volume going up when the markets going up to follow a trend it's not real clear that it's doing that in fact volume stays rather low for a big portion of the time and then it gets rather high here which is kind of a strange place then it comes off and trails down here as the market starts to move up but if you look at our balance volume it's very clear that the trend of the line is just up up up and there's a couple things behind the switch we don't have a lot of time to go into but one of them is that actually the oversimplification of saying that volumes should go up as market moves up in the direction of the trend is not always true and this is where people get confused they take a basic principle and they apply it to all times in the market the problem is if volume is always moving up as the market moves up you run out of buyers and that's why you don't really want it it's good to have it at the beginning of a new trend to get the impulse out of the opposite direction of the trend when you get a new trend going in a new direction it's good to get good volume coming in that direction just to get the impulse the shift the momentum shift and then start the new trend but after it gets going you really don't want big volume behind the trend because again if you get too much volume that means a lot of participants and a lot of participants means all the people are in the buy in the market buying they're already long and therefore the trend cannot sustain so really this is ideal for a sustainable trend and so this one lasts for a couple of months works out real nicely and the indicator is helping you a lot and sure enough it ends up turning around volume increases dramatically and this is what I'm talking about and a new trend to the downside that's when you want your big volume in obv still gives you a nice timing indicator on that let's bring our line up horizontal line so what we've got here whoops is a horizontal line and we make a little bit of a lower low here a little bit of a lower lows kind of a double bottom pattern now in these double bottom patterns what you want to see is you want to see that volume is not pushing down into this this is another very important part of volume reading volume how much volume do you have going into support resistance if support is going to hold you don't want a lot of volume want lighter volume again if you look at just the volume histogram it's not really that clear it looks about the same from this low to that low but then if you look at unbalanced volume it's actually a little higher a little bit of a divergence there if you will and with that spiked bottom doji bar that also adds to the fact that the market is rejecting the value under this low and the indicator is diverging with volume and later volume or about consistent volume is coming in here but the up versus down volume has shifted and therefore it's very likely that that support will hold in the market will then go up from there
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How to use a trading volume indicator to create higher probability trades for day trading and swing trading the futures and stock market. Earnings & Income Disclaimer
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