New students of technical analysis believe profits come quickly by memorizing well-known patterns and locating them on their favorite stock charts. Successful traders take the time to examine each chaotic swing within a congestion pattern to predict both the direction and timing of the eventual breakout.
Profitable positions depend on accurately reading the shifting emotions within the trading crowd.
No tool provides better insight into this critical study than volume. As price bars snake back and forth, visually compare the short spikes of buying and selling to see which side is winning . When volume increases on short rallies and declines on dips, a bias exists for the bull's successful outcome. Alternatively, fear revealed through a series of lower bars with increasing volume often signals an eventual breakdown. Regardless of direction, expect volume to decline overall as the pattern develops.