Am I correct in thinking that decreasing volume signifies decreasing bullish pressure on price? Or is that complete nonsense?
You are not correct but it’s not nonsense either.Decreasing volume happens in both bulls and bears. Look at the illustration and you see the volume decrease in a bearish leg, Red as well as bullish
So decreasing volume may indicate exhaustion of the current trend?
Yes, it may but the trend could keep going for a while longer (look at the equity markets right now for an extreme example). Take volume as an indicator that something could change, but keep trading what is there.
Volume in the FX market is nothing more than participation (which is also referred to as volatility).
You can use tick volume to nullify or validate price action.
Example- If you see a small doji-like bullish candle @ the peak of a bullish wave (small price spread i.e. body of the candle is small), with well above average volume (say more than the previous two volume bars) this is a red flag and a potential sign of weakness. Is this a sign of a full-fledged reversal, no. But, if there was that much participation from both sides of the market, but the price spread didn’t accurately reflect the corresponding volume, you know that there are counter-trend forces pushing price down. Always be thinking effort vs. result.
Narrow spread candles, you want to be looking for anomalies where volume doesn’t validate price action.
Wide spread candles, you want to be looking for volume to validate (confirmation) and anomalies to signal traps.
Volume is a measurement of activity but without including [B]price movement[/B] in the analysis you won’t get a clue as weather it’s buying or selling activity increasing or decreasing.
Reading Volume must be in the context of the story line. For example, if the current condition is bullish, with volume confirming this in the background, then a low volume test for sellers on a down move often occurs at predictable levels such as a previous resistance, or previous support turned resistance, points of confluence etc…
This low Volume is due to a pause in buy activity by Smart Money to TEST for sellers before attempting to continue a trend.
Thanks for the response. Would it be correct to say that the higher the volume associated with a given candlestick, the more definitive the movement shown was? For example, if you saw a strongly bearish candlestick during an uptrend, would that be a more bearish signal if the volume associated with it was very high?
Hi JRC…
Please read this thread
NOW
Volume is only one side of the equation.
Volume will be relative to previous volume bars.
What’s your definition of “a strongly bearish candle”?
Volume validates price spreads. Any type of sentiment following movements in price will depend on “where” price is presently trading.
Price spreads, like volume, will be relative to previous price spreads (candlesticks).
It’s tough to answer theoretical questions like this because of the variables. It’s better to use charts for examples if you have them.