Volume and Chart Patterns

Volume and Chart Patterns

 

Volume helps to confirm chart patterns. These patterns may be head and shoulders, triangles, flags and other price patterns. In case volume is not there to confirm the movements of a chart pattern, then the quality of the signal formed by the pattern is weakened.

• Volume Precedes Price

It has been observed by technical analysts that prices precedes volume. Volume is primarily used by technicians and chartists to confirm upcoming trend reversals. For instance, if volume is starting to decrease in an uptrend, it is usually a sign that the upward run is about to end.

• Breakouts and Volume

In order to enter into a position traders often look for breaks of support and resistance. The two key components to confirm a breakout are price and volume. When stocks break critical levels without volume, the breakout may not follow through. Following is a figure showing Volume Breakout.

Go back to Tutorial