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Importance of Volume

  #18 (permalink)

Boston, MA
Posts: 166 since Dec 2014
Thanks: 61 given, 118 received

dom64 View Post
Unlike RSI or MACD, volume is not an indicator. You want to buy at 1.27 and I want to sell so we do a deal and we exchange a contract. This creates a volume of 1. Someone else then wants to buy at 1.2701 and someone else is willing to sell and another deal happens so this creates another volume of 1. If there was limit orders of 1 at each level then the price will move up accordingly.

This is order Flow, what makes the market move up or down, nothing to do with an indicator, and all of that can be seen on a DOM. The whole thing can take a while indeed to learn, but understand that volume is simply exchanging contracts and the only thing that makes the price move (or I should just say the only thing that makes the price very simply), is key.

This is not like using an indicator whose use is debatable, but just the mechanism of the market. I have not decided it is the case and this is not coming from me, it is simple a fact and how the market moves.

Everyone uses and looks at volume simply by looking at the price, even if unknowingly. It is the underlying of the price. Volume precedes the price.

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This is overly simplistic and not necessarily true. Huge volume can be at a single price level and does not have to move price. What moves price is order imbalance at a particular instance of time, and overall volume has nothing to do with it.

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