Volume and trend strength

As a general rule, the greater the volume the stronger the trend and the lower the likelihood of the trend faltering or changing. The correlation between volume, trend strength and likelihood of a trend change is indicated in table 9.2.

Table 9.2: trend strength, changes and volume

I’ve illustrated the relationship in figure 9.1 for uptrends and downtrends. I’ve drawn price and volume trends as straight lines but of course they’ll actually be wavy or jagged and there may be volume spikes or price gaps.

Figure 9.1: volume and trend strength for uptrends and downtrends

In sidetrend channels the volume is usually fairly steady, but increasing volume can indicate a possible trend breakout. If the price is around the top of the channel the breakout is likely to be upward, whereas if the price is around the bottom of the channel it’s likely to be downward. Falling or low volume in a sidetrend usually indicates trader apathy; that’s to say, lack of interest in this stock.