THE HAndbook oF TEcHnIcAl AnAlySISThis is bearish for an uptrend. Similarly, as prices fall and volume subsides, traders
and investors indicate that they are less interested in participating in the downside
move. This is bullish for a downtrend.
When both volume and price rise together, traders and investors indicate that
they are interested in participating in the upside move. We say that there is a con-
vergence between price and volume, or that volume confirms price. This is bullish
for an uptrend. When volume rises and prices decline, traders and investors indi-
cate that they are interested in participating in the downside move. This is bearish
for a downtrend. In short:
■ (^) Volume convergence, that is, volume increasing, is an early indication of a
potential continuation of the existing trend.
■ (^) Volume divergence, that is, volume decreasing, is an early indication of a po-
tential reversal of the existing trend.
It is important to note that, unlike for standard price based oscillators, the direc-
tion of price is irrelevant in the determination of volume divergence. Although the
existence of divergence is not dependent on the direction of price, we still require
knowledge of it in order to determine whether the divergence is bullish or bearish. It
should also be noted that there is no reverse divergence classification associated with
volume (refer to Chapter 9 for a detailed treatment on the classification of divergence).
Volume divergence always indicates potential weakness in an existing trend, whereas
volume confirmation always indicates potential strength in an existing trend. In short:
■ (^) Bullish divergence can only occur in a downtrend, indicating a possibility of a
potential upside reversal in the trend.
fIgure 6.3 Volume Not Confirming a Preexisting Trend.