The Importance of Volume

Over the years, I have been studying the influence of volume on price action. In teaching it, the problem has been for futures on how to deal with roll-over volume – especially for those contracts that roll monthly. To deal with this problem, I devised a manual method to calculate normalization of volume.

I did not actively teach it because I felt that most would not take the trouble to do the calculations – much like most choose not to do the stats calculation for impulse and corrective means and their standard deviations. I did it include it in the mentor course.

However, help is now at hand.

Over the past two months, we have been testing a program created by Kym Haines that normalizes the volume of data in csv format. The results of our tests show that Kym has delivered the goods. For this reason, I am now happy to share the results of our discoveries:

a) The reliability of Upthrusts and Springs improve when C has volume that is 97% or less than A and is within the Maximum Extension. Interestingly enough, the same observation has been made by Tim Ord in his new book, ‘The Secret Science of Price and Volume’.

b) When assessing if an impulse move is likely to be coming to an end, I compare the last impulse move within the Ray Wave structure with the penultimate move. Generally if a reversal is likely, the last move will have average daily volume of at least 33% lower volume than the average daily volume of the penultimate move.

In addition to the above, by Timothy Ord in ‘The Secret Science of Price and Volume’ apart from also observing (a) above, has come up with some new insights. These we still have to test:

1) A top is confirmed when the last impulse move has at least 50% less volume than either the penultimate impulse move or the corrective move immediately preceding the last impulse move.
2) The CIT is confirmed when the next directional move opposite to the previous trend has 50% more volume than the last impulse move. In Figure 1, the average daily volume of BC can be 50% or less of AB or XA. The downtrend is confirmed if CD has greater average daily volume than BC.

Tim also has some interesting insights about volume and gaps. To say the least, it’s worth a read (

3 thoughts on “The Importance of Volume”

  1. Ray

    Kudos to Kym, a feather in his cap and yours as well, for your joint efforts to test your program to normalize Volumes.

    Not my cup of tea, I must admit, to calculate normalized volumes, manually!

  2. hi Ray,interesting analysis,perhaps you could express it with a few diagrams,if you ever had time in the future.I myself use the theory that volume expands in direction of trend,to help me with price action and re-action in picking a suitable entry point on a smaller time frame.Volume is a really interesting topic and its always good to read your thoughts on it,so as to get another perspective. best wishes Baz

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