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Volume lets you know where traders are agreeing to value at a given time. In case the market has been trading inside a small range after which it breaks above that range on big volume, it means that the market is accepting value at higher levels. Should you be attending a public auction for a painting that you own and huge numbers of bidders kept offering higher prices for the painting, you’d probably conclude that the painting hasn’t yet found its final selling value. You surely wouldn’t sell your art piece the moment the first gang of bidders begins to vigorously bid.
The stock market works on comparable auction based principles. On a daily basis, we see a public auction for such paintings as the S&P Black Joe Thomas Jersey , DOW, Russell 2000, and so on. The energetic interaction involving buyers and sellers establishes value for all markets. It’s whenever you see volume increasing on a price move that people realize that the market is out of balance. It’s going to continue to move in its direction until it might draw in sufficient selling or buying interest to create a new balance.
Frequently, I’ll ask a trader that missed a breakout move what happened to volume during that period of time? Usually the reply is going to be I’m not sure. The investor was so busy focusing on price and so busy being focused on their own reactions to the movement-that the auction-based meaning of the breakout was lost.