As far as trading off of price and volume the answer is yes. The best way to understand what is actually happening in the market is through Volume Spread Analysis. VSA looks at the supply/demand dynamic from a 3D approach: price, volume and spread (range of bar). It seeks to establish the cause of price movement, the result of imbalances of supply/demand created by professional operators.~Todd Krueger (tradeguider.com) STOCKS AND COMMODITIES , OCT. 2006, P52. Volume is the key to the truth. It is the major indicator of the professional trader. Once you understand volume, you start to trade on facts not on ("the news").
Having said that, volume means little without an understanding of price. The question becomes, "what did the market(price) do on that volume?" Price and volume are intimately linked, and the interrelationship is a complex one. It is a study of this relationship that is the heart of VSA.
I highly recommend you go to tradeguider.com and watch all the free videos and webinars. Then you should buy the book "Master the Markets" by Tom Williams (the father of vsa, if you will). I am a customer of some of their products, but not of the software itself. Thus I make no recommendation on it. Personally, I do not like it. I think there are some black box elements and not enough ability for user defined tools. However, the methodology on which the software is based is surely valid. You are welcome to join in the discussion at Moneytec.com on the learning to speak the language of the markets thread, where VSA the method is primarily discussed.
One question to ask yourself is;"if volume is not all that important, why is so much attention given to NOT giving out volume information?" Why is it that true volume information is delayed a day, or why is only tic volume available? Volume is activity and hence we are able to use tic volume, but the fact that actual volume is hidden from the masses should alert you to its ultimate power. As seen by the big boys. They know how important volume is in analyzing the market. 85% of the volume on a volume histogram is from professional, or smart, money. If one learns to track their movements and follow them, one can find himself on the dominant side of the market most of the time. After all, why do we call them smart money? Because they are in the 90% that lose money. Or are part of the herd that always seems to buy at tops and sell at bottoms. Of course not. We call them smart money because the tend to be on the right side of market moves. Can they be wrong? Clearly. But they tend to be wrong less then the retail trader.
More importantly, it is their actions that create the imbalances of supply and demand thru selling and buying respectively. Markets fall because of selling (dumping supply) onto the market. Markets rise, not so much because of professional buying (demand/soaking up supply), although that does play a role, but mainly they rise in the absence of professional selling (dumping supply). Simple price bars and volume are all that is needed to see this action taking place.
I believe that Volume Spread Analysis is the method, but is does not make the trader. Ulitmately, the trader makes the method.
