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| Fig. 1 |
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Again, a volume analysis chart provides us with fresh insight. Three volume spikes (two large ones in July and October 2002, as well as a smaller VMA peak in February 2003) correspond with a distinct long-term trend change for the S&P 500. You could argue it was prompted by the outbreak of the war in Iraq. However, our volume analysis indisputably demonstrates that that index “was ready” to move up, given the large buildup of supportive volume, as evidenced by the two very significant volume spikes. It could also be argued that the new uptrend actually began on October 10, 2002 and that the January 2003 move to retest the recent lows was just a mid-term correction of the new up-trend.
Example 2: Do you remember the market action in March 2004?| Fig. 2 |
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On this 30-day chart, you can clearly establish that each major volume spike was followed by an index reversal.
Example 3: Fig. 3 shows that the discussed relationship between volume spikes and index reversals applies equally well to the short-term, not just to the mid- and long-term. Note how each volume spike coincides with an index reversal point.
| Fig. 3 |
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Conclusions
Trading remains an inexact science, or perhaps more
fittingly, an art. Every trader knows that no system or analysis
technology is 100% perfect, and neither is volume analytics. We have
just touched on the topic briefly here, yet the examples provided should
have given you at least an idea of the benefits this proven and refined
methodology could bring to your trading. If you would like to add
volume-based approaches to your trading arsenal, please visit
MarketVolume for further information. There is much to discover.
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