Volume

Is volume important in your trading?

 

there's been many threads dedicated to this subject.

I think many will agree that volume can be useful, but its very possible to trade profitably without ever looking at it.

 

Volume is very important to technichians who are gauging investor sentiment. Stocks that go up on light volume are said to be suspect.

Think about it, if the stock fundamentals are improving, lots of people should be trying to get in, and increasing volume. (Short explaination).

Stocks that go up on light volume can have lots of other short term reasons besides a change in sentiment.

 

Volume is important from two perspectives.

First, you must understand how your strategy depends on volume for success. Does the trading instrument have sufficient volume to get the fills your require. Many "scans" looking for opportunities for a given strategy produce "high return" candidates with little or no volume, thus making the scan very misleading. The "real" opportunities are buried way down the list.

Second, there are many TA methods that look at change of volume as one of their indicators. Here again, you must be careful of thinly traded instruments as the indicator looses its statistical significance in such situations.

 

It`s important. But, personaly, i think Volume is not the leading indicator. There is something that frontrunning Volume. Guess what...

 

Areas of high volume mean lots of trade happened at that area which means “acceptance” of the price. Areas of low volume show that traders didn’t agree to trade there and there was “rejection”. This is the basis of auction market theory – the market is constantly seeking out areas of acceptance in order to facilitate trade.

(Quote from Michael)

 

On an intraday basis, volume is not all that it used to be.

THINK: what has happened to the markets of late?

Dark pools, liquidity rebates, iceberg strategies, HFTs, institutional traders covering their tracks etc etc have corrupted the predictive power of volume on an intraday basis.

Volume still has a place on an intraday basis, but one has to look for very specific circumstances where volume is useful information (clue: convergence of multiple timeframes).

 

Of all the indicators available to a trader, Price and Volume represent the only tools I use, and of the two (to me), Volume is most important.

YMMV.

- Spydertrader

 

The most important ...