Technical Analysis of Volume Confirmation
In an uptrend, volume should increase as prices rise and decrease as prices fall. As long as this pattern continues, volume is confirming the uptrend. Downtrends operate in the opposite direction. Volume should expand as prices decline and contract during rallies to confirm a downtrend.
If new price highs in an uptrend occur on declining volume, negative divergences can occur. A decrease in buying pressure is indicated by this kind of volume activity. Prices may begin to consolidate or reverse into a downtrend if volume also begins to rise on price declines. The same concept is true for positive divergences in downtrends. Prices may begin to consolidate or reverse into an uptrend if volume begins to decrease at new price lows but increases during rallies.
This is the end of our section on trends and trend lines. In part 11 we’ll dive into some of the fundamental price patterns that result from when two trend lines are in effect at the same time.
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