THE HAndbook oF TEcHnIcAl AnAlySISpredominant trend. Volume is regarded as a supporting or secondary indicator of
potential future price action. To confirm the trend:
■ (^) Volume should increase as price rises and decrease in any downside retrace-
ments in a preexisting uptrend (bullish volume action).
■ (^) Volume should increase as price declines and decrease on any upside retrace-
ments in a preexisting downtrend (bearish volume action).
Any volume action contrary to the above is an indication that an uptrend may
potentially be bearish and a downtrend bullish. Volume is an indication of market
participation. It is the total number of shares or contracts traded over a specific
time interval. When studying volume, the practitioner should always remember
two basic principles, which are:
- A rise in volume indicates that market participants are interested in seeing the
price go higher in an uptrend or lower in a downtrend and are willing to buy
higher in an uptrend or sell lower in a downtrend in order to participate in the
unfolding market action. - A decline in volume indicates that market participants are losing interest in
seeing the price go higher in an uptrend or lower in a downtrend and are more
willing to buy lower in an uptrend and sell higher in a downtrend, if not exit-
ing positions in the market.
Notice that, in Figure 6.1, both rising and declining volume are regarded as
bullish volume if both volume and price rise and decline together in a preexisting
uptrend. Conversely, both rising and declining volume are regarded as bearish vol-
ume if volume and price move in opposite directions to each other in a preexisting
fIgure 6.1 Volume Confirming a Preexisting Trend.