The Importance of StockCharts.com Volume Patterns
Volume provides easy-to-read information regarding the liquidity for a stock at a particular time. Falling Volume often precedes the slip-slide action when price falls not due to profit taking or selling short, but simply because there are insufficient buyers at the time to sustain price.
With the advent of the new Securities and Exchange Commission pilot program designed to test wider spreads on thousands of stocks to see if the wider spread would provide more liquidity, watching Volume has become even more important than ever before. Mostly small cap stocks benefited from the wider spread testing.
Big blue chip stocks can also suffer from very low liquidity at times, which can create anomalies and alter short-term runs often surprising the Retail Trader who is expecting a run to continue moving upward.
Buy Side Institutions influence on price and volume is due to their Dark Pool Quiet Accumulation over time and their bulk of volume activity. However when there is uncertainty, these Giant Funds will cease their buying and wait. They can be patient for extended periods of time sitting on the sidelines waiting to see how the other Professional Market Participant Groups, the Smaller Funds, and the Retail Traders behave.
Buy Side Institutions use custom routing with Alternative Trading System venues creating Dark Pools.
This keeps their activity hidden to lessen the risk of moving a stock price due to their liquidity draws, which can be significant. However the Retail Traders tend to move price with higher volatile price action. See the chart example below.
Martha Stokes CMT
TechniTrader technical analysis using a StockCharts chart, courtesy of StockCharts.com
Chartered Market Technician
Instructor & Developer of TechniTrader Stock & Option Courses
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