THE HAndbook oF TEcHnIcAl AnAlySIS
indicative of money flowing out of the market whereas bullish signals suggest
money flowing into the market. The Herrick Payoff Index may be scrutinized for
bullish and bearish signals using any or all of the eight modes of oscillator analysis.
Finally, the Commitment of Trader, or COT, report is released every Friday. It re-
ports all open positions held by the commercials (hedgers, non‐cash positions),
non‐commercials (hedge funds, financial institutions, large traders), and for the
aggregate position of small traders. Traders and investors use the COT report to
identify potential tops and bottoms in the market by looking for changes in the
net commercial or non‐commercial open positions, as well for a test of any signifi-
cant or historical open interest levels.
6.3 Chapter Summary
In this chapter, we have observed how volume and open interest play a critical role
in helping to decipher potential price and market action. We have also seen how
price‐based volume oscillators are interpreted differently from non‐price‐based
volume indicators. We shall be applying most of what we have learned in this
chapter, with particular emphasis on volume divergence and filtering volume ac-
tion, throughout the rest of this Handbook.
Chapter 6 Review Questions
- What is the difference between volume and tick volume?
- Describe bearish and bullish volume.
- How is volume divergence distinct from standard oscillator divergence?
- How would you use volume as a timing indicator?
- Describe the various modes of volume filtering.
- Describe the relationship between volume, open interest, and price.
- Which is more useful, absolute or relative volume?
- How are volume cycles useful and where would you normally find them?
referenCes
Archelis, Steven B. 2001. Technical Analysis from A to Z. New York: McGraw‐Hill.
Arms, Richard W., Jr. 1989. The Arms Index. Homewood, IL: Dow Jones‐Irwin.
Colby, Robert W. 2003. The Encyclopedia of Technical Market Indicators. New York:
McGraw‐Hill.
Morris, Greg. 2006. The Complete Guide to Market Breadth Indicators. New York:
McGraw‐Hill.
