10 Tips to Getting Started With Technical Analysis

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Tip #8: Volume

Support and resistance levels have a lot to do with volume. For our purposes, trading volume is the number of shares or contracts traded for a security during a given period.

Point blank, volume should follow the trend. That is, in a bull market, volume should increase on rallies and contract on declines. In a bear market, volume should grow on declines and contract on rallies. But what happens if volume doesn't follow the trend? Say, perhaps, that a stock advances and volume contracts. Or a stock falls and volume expands.

While it shouldn't happen, when it does, it almost always leads to a sharp reversal, which means a profit opportunity could be in store for traders. Changes in volume often equate to significant price changes.

Next: Tip #9