Quote from bhardy307:
Can you please give me a quick mathematical definition of the Price Volume relationship? Sorry, I'm very new at this, but was pondering a system that would identify momentum. In other words, rate of change of Price times Volume.
But, as I am now thinking while typing it wouldn't be the rate of change of price, but rather the rate at which the transaction is being completed, in the same way that generally price inflation is partially a consequence of how quickly money changes hands.
I may be completely off track here, but it reminds of the equation defining price inflation: M*V(t) = P(t)*T
Yes, I know, I reek of newbie.
I am the wrong person to explain it, because I don't believe it. Kind of like me summarizing the Gospels. But I'll try, in the hopes that it will be so laughably wrong that Jack or The Et Al. will step in.
In the early stages of modestly rising MoMo (I am ignoring a real screamer here, which behaves somewhat differently), price attracts interest as evidenced by similarly rising volume. As the move gets mature, interest wanes because of fear of overextension and due to profit taking, and the volume falls. This is the first place the Faithful believe that volume leads price, presaging a retrace. A combination of waning interest and price overextension leads to a top and a retrace. Price falls first on modest volume, less than during the rise, and eventually interest in selling or shorting wanes, and the volume on falling price decreases. This is the second place the Faithful believe that volume leads price, presaging a trend resumption. All the weak hands being shaken out, and the shorts overexposed, the rise resumes fueled by short covering and with the same pattern repeated one to four times depending on the trend strength. Then you either get a going nowhere congestion or a major reversal with the same pattern repeating inverted on the way back down. In a trend reversal, what starts out looking like a retrace changes when volume starts increasing on falling price. This is the third place the Faithful see volume leading price, presaging not a retracs but a reversal. A screamer behaves differently with orgasmic volume blowoffs that are a bit more complicated to describe. There are other patterns, but this is the basic one. Don't believe a word of it!
Cannot comment on any similarity of PV to price inflation, as I am an enginear, not an economyst.