Understanding Volume behaviors
Thursday, September 24, 2009 | Nigel Hawkes ( Hawkeye Traders) Is this Spam?In our last volume article, Understanding Volume - we discussed Normal Volume versus Abnormal Volume behavior s. This week we are going to look at the importance and timing of volume spikes.
Volume Spikes
Volume Spikes are sudden and abrupt rises in volume (not just an increase in volume but a significant and abrupt increase in volume). Volume spikes are normally easily identifiable on a chart because they stand out when compared to previous volume bars.
Large volume spikes at the top of markets should be accompanied by very little upward price movement at the end of the move. This is what foretells the end of the advance. If you get volume spikes with large or comparable price movement, then the price could continue upwards. The key is price hitting a resistance line or seeing a small range bar on high volume. The small range bar shows that there is resistance (or support in the case of large volume after a decline).
If you are in a trade and notice high volume bars without advances in prices, as this is generally an indication of an impending reversal because the buyers (or sellers in downtrend) are drying up. Additionally, when you see Wide Bars or multiple violent price swings with a volume spike, this indicates that the price will typically reverse very soon.
