Volume that dreaded word, which I once consciously made an effort to avoid. Why complicate a trading strategy even more. But over a period of time as I warmed up to the idea and started reading casually, what I once hated has become a very useful analytical tool for trading. So much that trades can be made purely based off price and volume charts. This article attempts to do the same for the read. Warm you up to the idea of using volume in your analysis.

We know that the retail trading crowd is merely a drop in the ocean, that is usually filled by institutional orders. As much as we try not to think about it, most retail traders dont have enough capital to move stocks the pride of institutions and our envy. No wonder then that we get to see so many books, movies about how rigged the markets are and how trading equities (or any markets for that matter) is so difficult. The silver lining despite all the negativity is the little known tools that can help the retail folk gain an edge. Simply following the institutional moves, the retail trader can often hitch a ride.

While we have the CoT reports for the futures markets which shows institutional holdings, for the equity markets, the exchange volume for a the particular stock can help give a sense of confidence to the retail trader.

Volume is defined the number of contracts that have changed hands during a period of time. Be it day, hour, 4 hours or 5 minutes. This transaction data is then plotted onto the chart as a histogram. Volume helps retail traders to understand at which price (or prices) there is more interest among the traders (incl. institutionals). Most often, the large volumes that we see especially during earnings or news releases are often done by the institutional hands. So what would you do if you knew this information? Say for example a stock traded at a price region with high volume? That says something doesnt it? A price region of interest can potentially point to a bullish or a bearish move that is soon to happen.

The advantage of using volume to your existing methods is the fact that it is non interfering. In other words, you dont need to change your trading methods or style. Volume analysis rather tends to validate your trade bias. So if you or your trading system points to a bullish bias, then you could take a quick glance at volume to see if it will be a valid move or not.

Another aspect about volume is that it is real time just like price. So comparitively speaking, unlike your MACDs or moving averages, volume tends to reflect the actual sentiment as it happens. Notice a bigh bullish candle on high volume? That simply shows a bullish sentiment in the market. Most often, these big or wide moves (large spreads) usually attract a lot of trading attention and needless to say, your moving averages or MACDs also tend to reflect these big moves.

Volume Analysis Resources

There are many resources available now a days for those interested to start using volume analysis, and here are some that I recommend.

M aster the markets . from Traderguider is a free resource which I personally think should have retailed. This is your first place to start when it comes to volume analysis. Besides the fact that its free. this 185 page PDF gives you an in depth look into volume, why it matters, who is behind it and much more. I would recommend you to make some notes while reading this PDF as its generously sprinkled with lot of trading nuggets that im sure will help you out, even if you are not interested in volume analysis after reading this free PDF.

A Complete Guide To Volume Price Analysis . by Anna Coulling is a light read that should warm you up to the idea of using Volume analysis. Starting off with simple to use concepts, the author makes a great attempt to make it easy for the reader to understand and interpret volume bars.

I nvesting with Volume Analysis: Identify, Follow, and Profit from Trends , by Buff Pelz Dormeier is the next book to read. Dormeier is the founder of Volumeanalysis.com and is regarded as one of the authorities in this subject. Most recently, this book was awarded the Book of the year by The Technical Analyst, an international publisher.