Chapter 10 Volume Indicators

According to the Dow Theory, volume leads price. In an ideal application of this theory, this would mean price movement could be anticipated simply by tracking volume. In practice, however, this is not quite as easy as it sounds. Volume might lead price over longer-term trends, but short-term volume and price changes remain chaotic.

Even so, using a series of volume-based indicators, it is possible to confirm price signals and to identify opportunities to time trades. However, trend movement does not always confirm continuation of a current trend. It may also serve as a warning of a coming reversal. When volume acts as a form of divergence, seek confirmation in order to anticipate a change. A volume spike, for example, ...

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