Is volume important in your trading?
Volume
- Thread starter Chuck Krug
- Start date
Volume is very important to technichians who are gauging investor sentiment. Stocks that go up on light volume are said to be suspect.
Think about it, if the stock fundamentals are improving, lots of people should be trying to get in, and increasing volume. (Short explaination).
Stocks that go up on light volume can have lots of other short term reasons besides a change in sentiment.
Think about it, if the stock fundamentals are improving, lots of people should be trying to get in, and increasing volume. (Short explaination).
Stocks that go up on light volume can have lots of other short term reasons besides a change in sentiment.
Volume is important from two perspectives.
First, you must understand how your strategy depends on volume for success. Does the trading instrument have sufficient volume to get the fills your require. Many "scans" looking for opportunities for a given strategy produce "high return" candidates with little or no volume, thus making the scan very misleading. The "real" opportunities are buried way down the list.
Second, there are many TA methods that look at change of volume as one of their indicators. Here again, you must be careful of thinly traded instruments as the indicator looses its statistical significance in such situations.
Areas of high volume mean lots of trade happened at that area which means âacceptanceâ of the price. Areas of low volume show that traders didnât agree to trade there and there was ârejectionâ. This is the basis of auction market theory â the market is constantly seeking out areas of acceptance in order to facilitate trade.
(Quote from Michael)
(Quote from Michael)
On an intraday basis, volume is not all that it used to be.
THINK: what has happened to the markets of late?
Dark pools, liquidity rebates, iceberg strategies, HFTs, institutional traders covering their tracks etc etc have corrupted the predictive power of volume on an intraday basis.
Volume still has a place on an intraday basis, but one has to look for very specific circumstances where volume is useful information (clue: convergence of multiple timeframes).
THINK: what has happened to the markets of late?
Dark pools, liquidity rebates, iceberg strategies, HFTs, institutional traders covering their tracks etc etc have corrupted the predictive power of volume on an intraday basis.
Volume still has a place on an intraday basis, but one has to look for very specific circumstances where volume is useful information (clue: convergence of multiple timeframes).
Of all the indicators available to a trader, Price and Volume represent the only tools I use, and of the two (to me), Volume is most important.
YMMV.
- Spydertrader
