Volume is not always easily deciphered. Is the market trying to tell us something when an exceptionally low volume occurs in a single day, or when an exceptionally high volume was transacted recently? A single volume bar by itself will not be meaningful. Volume is always analyzed in conjunction with the price movement of a stock as it develops with the market’s changing activity. Volume is the key to evaluating price directional movement and shows the market’s ability to facilitate trade. It serves as a gauge of the strength of market development and shows when such money-flow is either increasing or slowing down.
Under normal market conditions, volume tends to expand and contract with the price trend; the movement of price and volume should be similar progression. During the upward price movement, volume should expand; and during the downward price movement, volume should contract. We use volume to assess the strength and health of the prevailing trend. The specific number of a single volume bar is not important and the interpretation of volume should not be based only on a single daily bar. Volume should be studied in perspective with its recent action. Volume as an indicator will often be more meaningful when average volume is used (see Figure 5.4).