The analysis of volume is a basic yet very important element of technical analysis. Volume provides clues as to the intensity of a given price move. Low volume also often occurs during the indecisive period during market bottoms. High volume levels are characteristic of market tops when there is a strong consensus that prices will move higher. Just before market bottoms, volume will often increase due to panic-driven selling.
Volume can help determine the health of an existing trend.
The following chart shows Merck and its volume. Prices peaked at the end 1991 following a long rally. The increase in volume during the price decline showed that many investors would sell when prices declined. This was bearish. This showed that investors were not willing to buy, even when prices were rising.