Stocks Technical Analysis Basics Part 3

Volume

Volume bars are represented mostly as a histogram in a separate window below the price bars. Rising volume with rising or falling prices points to a rising (stock accumulation) or a falling (stock distribution) stock trend, respectively. Falling volume, on the other hand, points in the direction of a price correction.

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Figure 4.9: Rising and falling volume.

In the Unilever chart (figure 4.9), we see a rising price level beginning in March with rising volume. This is followed by a price consolidation, confirmed by falling volume. Volume up or downtrend is indicated by linear regression lines over the volume bars.

The price continues its way up, and a new top is reached with up-volume. Falling prices and falling volume in May indicate a correction, an additional price up-move is expected after this correction. The new up-move starts beginning in June and moves up until the beginning of July, with increased volume.

The next move down is not simply a correction, but the start of a new downward move. Prices are now falling with increased volume. The move up in August is a price correction because it has decreasing volume. As a whole, you can now see an up-going trend with corrections from March until the beginning of July, followed by a down-going trend.

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