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Today we will review one of the most meaningful indications, yet probably the one most overlooked. You need to have a trading system with a winning edge, and a means of receiving these trade signals. However, the vast majority of trade indicators are only based on price changes. As a result, you wont get an exit signal until the price has started to move adversely. Isnt there any sort of early warning for a stock or a market before it shifts direction? Absolutely - the answer lies in volume.

Consider volume as a validator of price movement. In other words, if prices increase from day to day on higher volume each day, we interpret that as genuine interest or desire in buying, which is bullish. If for some reason we see price increases on consecutively lower volume, that shows some hesitance on the part of buyers, which is not particularly bullish. The same can be applied to bearish downturns. If we see prices lower every day for several days, and volume increases each of those days, we interpret that as bearish, since more and more people are willing to sell at lower and lower prices. Lowered prices on lowering volume indicates that most investors are hesitant to sell, which is not terribly bearish, even though the market is declining. You may also see very low volume as a signal of a market bottom. If many investors are waiting on the sidelines rather than trading, it is an indication of a buildup of buying power.

When the floodgates open, it is common to see everyone buy in over a short period of time, resulting again in higher volume and higher prices. Ironically, there are instances when very high volume has pushed a price too high, and the underlying security (or market) will soon come tumbling down. Unlike our previous case, where volume served to confirm a price movement, when volume spikes while a price extends too far, that may be a signal to sell before investors change their mind. Take a look at volume on your next trade. Remember you want to trade in the same direction as others - not against them. What are other investors telling you with their interest, or lack of interest?

Have a good weekend.

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