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V.18:7 (36-41):Volume Basics by Martin J.Pring
V.18:7 (36-41):Volume Basics by Martin J.Pring
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Volume Basics by Martin J.Pring
How is volume used in technical analysis and what can it tell us?
Most of the indicators used in technical analysis are based on pricing data. We either use the prices themselves, a statistical manipulation of the prices with moving averages, or oscillators of some kind. Volume, though, is an independent variable and can therefore be extremely useful in confirming price action. There are many ways of using volume, such as the construction of oscillators, on-balance volume lines, and the designing of indicators using both volume and price. I will discuss some of these more sophisticated variations of volume analysis in future articles.In this one, however, I will concentrate on the basics.
PERFECT BALANCE
First, it is important to understand there is always a perfect balance between buyers and sellers because the amount of a security sold is always identical to that which is purchased. What moves prices is the relative enthusiasm of buyers and/or sellers. If sellers are more motivated than buyers, then the price will decline. If buyers are more motivated than sellers, then the price will rise.
How is volume used in technical analysis and what can it tell us?
Most of the indicators used in technical analysis are based on pricing data. We either use the prices themselves, a statistical manipulation of the prices with moving averages, or oscillators of some kind. Volume, though, is an independent variable and can therefore be extremely useful in confirming price action. There are many ways of using volume, such as the construction of oscillators, on-balance volume lines, and the designing of indicators using both volume and price. I will discuss some of these more sophisticated variations of volume analysis in future articles.In this one, however, I will concentrate on the basics.
PERFECT BALANCE
First, it is important to understand there is always a perfect balance between buyers and sellers because the amount of a security sold is always identical to that which is purchased. What moves prices is the relative enthusiasm of buyers and/or sellers. If sellers are more motivated than buyers, then the price will decline. If buyers are more motivated than sellers, then the price will rise.
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