FIVE POWERFUL VOLUME PATTERNS

Volume patterns are much harder to interpret than price patterns. The difficulty stems from the clandestine strategies of big market players. These folks tend to move slowly and cover their tracks within the broad noise of daily movement.

While price bars tell many tales in a vacuum, volume has little or no meaning without underlying price movement. But don't abandon your volume study just yet. It still adds power to prediction when you apply it judiciously.

The importance of volume depends on its location within the overall pattern. For example, heavy volume through a broken trend line suggests the start of a new trend, while the same activity after a long rally or decline predicts a reversal. This counterintuitive logic confuses traders and inhibits their ability to decipher volume at key turning points.

Here are five volume patterns that show considerable predictive power when interpreted correctly. Watch for these setups whenever you're flipping through your charts. Then realize how volume can yield vital information long before price action tells the tale.