Importance of Volume in Technical Analysis

Technical analysis is the most important part of trading, which is generally done by experienced technical analysts. Technical analysts can be an individual, group of individuals or a stock advisory firms like TradeNexa, which provide accurate Share Market Tips. In technical analysis, there are various points which technical analysts have to keep in mind while doing technical analysis. The "Volume" is one important term from the basket.

Volume is simply defined as the total numbers of contracts or shares which are going to be traded in a given time period. The volume is also often expressed as bar charts, in which prices and bars height represents how many shares or contracts have been traded per period. These volume charts are also helpful to show trends of decreasing and increasing the volume over time.

The Importance of Volume:
To confirm the chart patterns and trends, technical analysts used the concept of volume as it will help them to analyse the patterns of charts and pattern of trends.  To check the strength of any of the price movements, it is primarily measured by the volume.  The volume plays an important role in the confirmation of technical indicators.  For example, if a stock jumps 3% in a  24 hours trading which has been in a long-term downtrend.  So here the question arises is, this is a reversal of a long-term trend or not? And the answer to this question depends upon the amount of volume behind this move. If the amount of volume shows below average, the move is coincidence and the downtrend will continue. On the contrary,  if the volume is remarkably higher than the average then it may consider as a start of a reversal.

The Role of Volume in Chart Patterns:
The volume plays a crucial role in confirming chart patterns. These chart patterns can be flags, head, triangles and shoulders etc. These chart patterns are mainly used to foresee pivotal movements (reversals). If the volume is absent in these charts then one cannot get reliable signals. In this way, volume plays a crucial role in affirming chart patterns.

How volume precedes the price?
The one more important thing which every trader should have knowledge about is that Prices are predated by the volume. This is the job of technical analysis to have a look at volume to see when are the reversals will occur. In other words, if the number of volume changes, prices will going to change definitely. Similarly, if the amount of volume decreases in the uptrend then a reversal will likely to happen.

Basically, the volume is one of those key factors which are required by the technical analysts to confirming the chart patterns. The Volume of stocks or contracts is as important as stocks and contracts are required to do trading. Hopefully, this article will prove to be helpful for beginners to understand the mechanism of technical analysis, as technical analysis is the most important part of any trading. The traders can also trade on the basis of  Share Market from expert analysts.