Volume 101

When it comes to reading chart and other technical analysis patterns, volume probably plays one of the biggest roles in how strong that pattern will hold. Very simply, the volume tells you how strong a certain stock movement is. Obviously, stronger (or more) volume indicates a more significant stock movement.

We can see this clearly in the following examples:

In the chart below, Netflix steadily rose higher. We can clearly see the breakout spots and the unusual volume size on all of them.

In this next chart, we see that the stock was looking to move into a new trading zone; however, if you paid attention to the volume of the break above the resistance (blue line), then you would have been a little skeptical of the move. As you can see, the stock did not breakout and actually headed lower.

The key is to take notice of what the average volume is, and then determine what is considered lower and higher than normal volume.