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Chapter 6. Gaps and Volume

Chapter 6. Gaps and Volume

The previous chapter focused solely on price movement. Price is always the most important variable studied by a technical analyst. After all, it is a change in price that enables a trader to profit. This chapter adds another variable, volume, to the analysis. Volume is simply the number of shares traded over a specific time period, usually a day.

Volume is the oldest confirming indicator used by technical analysts. In 1935, H.M. Gartley provided general rules regarding how to interpret volume.1 Basically, Gartley suggested that price change on high volume tends to occur in the direction of the trend, and price change on low volume tends to occur on corrective price moves. During an uptrend, higher volume is taken as a sign of active and aggressive interest in owning the stock. However, during a price decline, volume might be light due to a lack of interest in the stock; a lack of potential buyers results in lower trading volume and a falling price.


  

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