Volume and Time

Many traders focus exclusively on price quotes, but while those are extremely important, there's more to the market than price. Volume of transactions provides a valuable additional dimension. Joseph Granville, a pioneer of volume studies, was fond of saying “Volume is the steam that makes the choo-choo go.”

Another hugely important factor of market analysis is time. Markets live and move in different timeframes at the same time. No matter how carefully you analyze the daily chart, its trend can be upended by a move that erupts from another timeframe.

In this section we'll focus on volume and volume-based indicators. We'll also look into tying all market decisions to their timeframes.

28. Volume

Volume reflects the activity of traders and investors. Each unit of volume represents actions of two individuals: one sells a share or a contract and another buys that share or a contract. Daily volume is the number of shares or contracts traded in one day (Figure 28.1).

Traders usually plot volume as a histogram—vertical bars whose height reflects each day's volume. They usually draw it underneath prices. Changes in volume show how bulls and bears react to price swings and provide clues to whether trends are likely to continue or to reverse.

Some traders ignore volume. They think that prices already reflect all information known to the market. They say, “You get paid on price and not on volume.”

Figure 28.1 BID daily, 22-day EMA, volume. (Chart by ...

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