The number of times that an asset is bought and sold creates volume. Through modern technology, self-directed traders can track volume within all of the timeframes that their software packages allow. Traders follow volume along with the help of other indicators. There is no single indicator that should be used alone, however. They should all be paired with various triggers and data analyses.
If you consider the market forces behind volume, however, you might find a few reasonable ways to profit and to determine the nature of a current trend.
Can Volume Indicate When to Trade?
There are many ways to use volume for trading, and one of them is in deciding on when to enter or exit. Someone has to buy from you if you sell and vice versa if you’re buying. Volume can tell you about the likelihood of market participants being available. As bars of volume spike higher within your software package, it doesn’t matter what prices do. More volume is always an indicator that more transactions are being cleared.
Use volume to indicate when to trade and to define:
– Market Interest: Low volume equals low activity. The interest of both buyers and sellers can be determined through this factor alone.
– Price Momentum: Prices that are already moving in a strong direction will continue or die off. The volume that spikes suggest an even more aggressive rally while lower volume suggests a slow down in momentum.
– Buy or Sell Confirmations: Try double checking your analysis by using volume as a confirmation tool. Look for spikes of volume to rise and then for prices to go in the direction that you anticipated, which confirms that you’re right.
The Core Advantage That Volume Trading Has
Volume trading gives you the direct benefit of liquidity. The next time that you enter the market look for conditions that make it the easiest for you to buy and sell. These conditions only exist through liquidity. The more participants that there are, the more likely that you can buy and sell at any current price. This ensures your greatest safety. Volume helps you to strategize on price behavior. It can confirm market entries for you.