Trading Systems and Methods, 6th Edition

CHAPTER 12Volume, Open Interest, and Breadth

Patterns in volume have always been tied closely to chart analysis of both the stock and futures markets. Volume is a valuable piece of information that is not often used, and one of the few items, other than price, that is considered valid data for the technician. Nevertheless, there has been little research published that relates volume to futures markets; its popular use has modeled itself on stock market interpretation.

The stock and futures markets have two other measures of participation that are related. In equities, the large number of shares being traded allow for measurements of breadth. In the same way that the stock index has become a popular measure of overall market trend, the breadth of the market is the total number of stocks that have risen or fallen during a specific period. When you have the ability to view the bigger picture of market movement, breadth seems to be a natural adjunct to the index. In addition, the total of new highs and new lows may add value to a trading decision.

The simple count of new highs and new lows can be viewed as an equal weighting of stocks, and equal weighting is known to show a fair picture of market movement. Individual stock volume often reflects the stocks with the highest capitalization. For example, in mid-February 2018, the volume (in millions) for a few of the more active stocks was Apple (AAPL) 45, Bank of America (BAC) 80, and General Electric (GE) 75. Yet, Northrop-Grumman ...